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Gulf banks urged to merge after crisis |
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11.3.2009 |
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KUWAIT CITY, Nov 2: The financial institutions were the worst hit entities in Kuwait in the current global economic crisis, says Ali Mousa Al Mousa, former Minister of Planning, Minister of State for Administrative Development, and Chairman and Managing Director of Securities Group, Kuwait. The former minister was talking on the second day of the Kuwait Financial Forum organized by Al Iktissad Wal Maal Group in cooperation with Central Bank of Kuwait (CBK) at Sheraton Hotel Monday. He was part of a panel of experts discussing ‘Development and Prospect in Kuwaiti Economy.’ Al Mousa said that pessimism is looming large in Kuwait, which was affected in the global meltdown. “Compounding the problem is a lack of consensus among lawmakers over important issues such as the 5-year plan and other projects.
“From Kuwait’s perspective, with government controlling the economy, the need for such plans is very strong.” The former minister unequivocally supported the adoption of the 5-year plan. “It is better than not having a plan at all.”
The panel’s mediator, Bader Al Humaidi, former Minister of Finance and Chairman of Triple E Holding, Kuwait, said prior to the start of the discussions that the five-year plan includes significant capital investments in physical and social infrastructure “as well as lifting crude oil production capacity.
“The plan also focuses on promoting the private sector’s role in the economy. When implemented, this plan should help in expanding the base of the economy and usher in a new era of economic development in Kuwait.”
Presenting his views, Al Mousa noted that some people are complaining about the political instability in Kuwait and are tying the economic problems to it.
“Many international rating agencies have given negative ratings to Kuwait for political instability. But we have to be realistic, and should not mix up issues. Yes, there have been political escalations in Kuwait, but many other factors have also contributed to the recent setbacks in the economy.
“The community must have the will to press for developmental issues. There is need for new legislations. For the five-year plan to be successfully implemented, we have to pass 23 new laws related to economy. Twelve out of those laws pertain to administrations and information, including training of human resources.”
Talking about the strong points in Kuwait, the former minister said that the public sector is very strong here, and is capable of launching big projects.
“However, the five-year plan is a must to facilitate these projects. There is an absence of a substantive economic program, which is well integrated with clear objectives.”
Al Mousa said that in 2009, so far, the economy has been growing at a modest rate. There is some stagnation in the oil sector.
“Several investment companies were hit. No serious remedies have been worked out to change the status quo.”
The former minister also touched upon the stock exchange and stressed the need for the plan to help investors.
Dr Kamal Radwan, Kuwait Country Manager, the World Bank, who was also a panel member, agreed with Al Mousa. “Five-year plan is very essential. It will be a qualitative move towards development.”
Radwan said that Kuwait’s private sector is also strong, “and so is the educational sector. Kuwait has a fairly good Human Development Index, which is a composite study including education, health, income and so on.”
Observing the other positive points about Kuwait, Radwan noted that the state has enough reserves to weather the crisis.
“However, we have to increase public expenditure for these positive points to translate into benefits. Investment rate in Kuwait is far less than in other Gulf states. Investment and public expenditure are key to growth.”
The World Bank official also explored possibilities in public private partnerships to help increase investments.
Radwan then analyzed some figures related to investment and growth. “In 2006-07 FDI in Kuwait was around $ 20 million per year. Kuwait is the least attractive destination for foreign investors.”
He compared these figures to those of Bahrain and Saudi Arabia, saying “Bahrain’s foreign investment for the same period was $ 1.7 billion, while that of Saudi Arabia was $ 18 billion. This year, Saudi Arabia drew $ 24 billion by way of foreign investments.
“Kuwait’s investments, meanwhile, decreased from $120 million to $ 56 million in 2008.”
Radwan said that foreign investments are indicators of the investment climate in a country. “We don’t need outside funds, but foreign investments show that the situation in Kuwait is conducive to investors.
“New laws must be formulated to change this situation. A World Bank report conducted recently ranked Kuwait 61 among a list of 153 countries in terms of investor friendly atmosphere.
“It says that about 70 percent of the countries are worse off than Kuwait. However, for Kuwait to achieve its aspirations of becoming the financial hub of the region, we need to better our ranking.”
Radwan said that we have been going down on the attracting-investors front. “In 2002 a similar study ranked us at 52. Before that, Kuwait was among the top 40 countries. In contrast, Saudi Arabia has moved to 13th place in 2009.
“Kuwait is not doing much to improve its standing. For the investment climate to change, we have to implement the five-year plan.”
Meanwhile a group of Kuwaiti businessmen, in a seminar held within the forum’s activities, underlined importance of the financial stability bill in contributing to support investments firms in facing the global economic downturn and rebuild confidence in the local market.
Investment firms are seen as crucial gateways to the global economic crisis, as they table many options to find solutions for it, Manaf Al-Hajri, General Manager of Kuwait Financial Center (MARKAZ) said, pointing out that investment firms needed a rather small capital to establish.
On his part, board member of investment companies’ union Abdullah Al-Gabandi said giving investment firms more space to maneuver helps in decreasing the state’s independence on oil revenues, as it also would greatly contribute in fulfilling His Highness the Amir’s aspiration to turn the country into a financial and commercial center.
Meanwhile, CEO of Al-Watani Investment Company Salah Al-Fulaij said the existence of some 100 investment firms in Kuwait is attributed to the relatively small amount of capital they need in order to be established.
The financial stability bill is “good”, Al-Fulaij noted, yet it could not protect all companies, but only the well-established, serious and arbitration-abiding ones.
Merge
Gulf banks should merge in the wake of the financial crisis, first in their home markets and then across borders, Oman’s central bank head and senior Gulf bankers said on Monday.
Gulf central banks should begin by encouraging domestic consolidation and then expansion throughout the region to build up stronger financial institutions, Oman Central Bank Executive President Hamood Sangour al-Zadjali told Reuters.
“They should start merging between national banks in the GCC (Gulf Cooperation Council) and have strong financial units with strong capital as a first stage ... and then, the regional expansion and mergers,” Zadjali said.
“After the financial crisis and the effect (it had) on some banks, maybe the motive for merging becomes stronger than before,” he said on the sidelines of a financial conference. “Central banks in the region should encourage and support (this).”
Bankers said obstacles remain, including the question of who would regulate a super-regional bank, but consolidation was needed to strengthen capital bases, specialise and tap an area gion whose growth is expected to outpace many developed regions.
“For mergers across borders, the time will come. But I think we will first see mergers within the (domestic) market,” Mashreqbank Chief Executive Abdul Aziz Al-Ghurair said.
“The next step is a cross-border merger but only if regulators agree who regulates who,” he said.
The fast pace of growth in the Gulf, expected to rebound from the crisis faster than developed markets such as Europe and the United States, has lured a number of international banks into the region to provide lending volumes and services their local rivals cannot.
But consolidation has been rare, with the 2007 merger of Emirates Bank and National Bank of Dubai into Emirates NBD being a rare exception.
Rising demand for financial services — in debt and equity capital markets, project finance, structured finance and advisory — would support the creation of bigger, regional, Arab banks, said Jean-Christophe Durand, regional director for French bank BNP Paribas.
“The crisis will force people to be more open to this,” Durand told Reuters. “It would be wise to have banks with networks all over the GCC.”
Bankers have long pointed to a gap between the financing needs of the region, where governments are investing billions in infrastructure and economic diversification projects, and the ability of local banks to provide it.
Shaikha al-Bahar, deputy chief executive at the National Bank of Kuwait (NBK), questioned the ability of local banks to finance $2.3 trillion worth of government projects in the region, saying foreign banks could play an important role.
“Are we able to finance mega government projects that we have been calling for?” she said at the conference.
Mashreqbank, the United Arab Emirates’ fourth-biggest bank by market value, has taken adequate provisions against its exposure to two indebted Saudi conglomerates, its chief executive said on Monday.
“We took 50 percent for provisions and this is enough,” Abdul Aziz Al-Ghurair told reporters on the sidelines of a financial forum.
The UAE central bank told lenders in July to book 50 percent of their exposures to Ahmad Hamad Algosaibi & Bros and 75 percent for Saad Group.
Mashreq — embroiled in a lawsuit with Algosaibi, which itself is entangled in a legal battle with Saad over nearly $10 billion in outstanding debt obligations — has said it has a $400 million exposure to the two.
It booked provisions of 849 million UAE dirhams ($231.1 million) in the third quarter.
Last month, sources said Algosaibi planned to meet creditors within weeks in a bid to reach a global settlement with lenders.
“There are good indications in this direction,” Ghurair said of any potential deals.
“Now they started to talk to offer some settlement. Of course we’ll take every appropriate procedure to get our money.”
Al Ghurair led the ‘Challenges Facing Arab Banks’ panel, and also addressed asset quality, liquidity, risk management and how it can be improved, in addition to the growth of regional institutions in light of the current market conditions. Abdulmajed Al Shatti, Chairman of Kuwait Banking Association, Youssef Nasser Chairman, HSBC Middle East Bank,, Shaikha Al Bahar, Deputy Group CEO in National bank of Kuwait, Jean-Christophe Durand, Managing Director in BNP Paribas, GCC and Dr Hussein Hassan, Head of Structuring, MENA Region Deutsche Bank contributed to the panel led by Al Ghurair.
Other topics that were tackled at the forum included; key learning from the global financial crisis, the future of the Arab economies and the financial market trends. The forum also featured workshops on the latest IT applications in banking services, payment systems and risk management.
One of the most successful bankers in the region, Abdul Aziz also holds a position as Speaker of the House at the Federal National Council. As CEO of Masreq Group, he was responsible for the bank’s international transactions and assisted in opening branches in New York, London, Bahrain, Qatar, Egypt, India and Pakistan. He was appointed director in 1989 and became the CEO the next year. Since then the bank has grown and expanded across the region to offer its customers high quality and prompt services. Under his 20 year tenure the bank’s assets have risen to AED 96.7 billion, making it a world-class financial services institution.
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Source:www.arabtimesonline.com |
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