Gulf and Arab banks can't finance huge projects alone

Nov 02, 2009 01:00 AM

Gulf and Arab banks are unable to finance huge projects in the oil-rich Gulf region and fill a credit gap created by the withdrawal of foreign banks during the global financial crisis, bankers said.
"The total shareholders' equity of the top 150 Arab banks is just $ 170 bn," Shaikha al-Bahar, deputy chief executive of National Bank of Kuwait, told the Kuwait Financial Forum. "These banks are not capable of financing huge projects. We have limitations," said Bahar, adding that the cost of projects in Gulf states over the next several years is estimated at more than $ 2.1 tn.

The global financial crisis has resulted in a major credit squeeze, forcing many countries in the region to cancel or postpone hundreds of projects for a lack of finance that was mainly provided by international banks. The cost of lending also became expensive, thus raising the cost of projects.
Jean-Christophe Durand, BNP Paribas managing director in the Gulf, said good projects will still be able to attract capital at the right price.
"(But) we still need international banks," for financing of major projects in the Gulf, he said.

Abdulaziz al-Ghurair, chief executive of Mashreq Bank in the United Arab Emirates, said Gulf banks can fill part of the credit gap with some help.
"Gulf banks can fill the (credit) gap created by foreign banks... provided risk is distributed at all Gulf states and with help from other sources," he said.
Speakers said cash-abundant Gulf governments are required to play a key role in financing mega projects, while others said local investment companies should also contribute.

Banks in the Gulf have been strongly affected by the credit crunch and many were exposed to bad debt, resulting mainly from a slide in the value of assets and problems at investment firms and family companies. All central banks in the region have asked banks to allocate provisions against bad loans, a process that impacted profits of Gulf lenders.
Former Kuwaiti finance minister Mahmud al-Nuri said he believes Gulf banks will not be able to face the post-crisis conditions without key mergers.
"I believe that over the next five years, there should be three to four regional bank mergers. This is very necessary," he said.

Ghurair said there has been no strategic plan for bank mergers in Arab countries and the few mergers that took place were among distressed banks.

Source / Dow Jones & Company, Inc.
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