Arab banks are looking abroad. After retrenching for much of the 1980s and early 1990s, a number of banks in the region are now preparing to expand overseas; and they're doing so just in time to confront the realities of the rapidly emerging global economy. Josh Martin looks at the prospects.
Arab banks are beginning to look outward once more. After retrenching for more than a decade, buffeted by volatile oil prices, debt crises and the structural upheavals of major economic reforms, they are now looking forward to a period of stable economic growth.
That growth has created demand for international banking services in two distinct areas: In-bound investment and overseas trade finance. As they move to meet that demand Arab banks are confronting the competitive realities of the global economy.
A number of Arab banking institutions have already successfully established themselves in global markets by developing expertise in particular financial activities. Among the "name" Arab banks present in New York, for example, are Arab Banking Corporation, Gulf International Bank, and the National Bank of Kuwait.
But the sheer scale of modern international financial institutions is daunting: Citibank, with assets in excess of $300 billion, is larger than all Arab banks combined.
The new desire to expand overseas is part of a sense throughout the Arab world that if companies and banks do not successfully compete in the global economy they will be marginalised. "Failure to open and embrace the world is becoming very costly," an Arab financier said recently. Countries and companies which fail to "go global" limit their potential, reduce their competitiveness, and find it increasingly difficult to attract foreign investment needed to sustain growth.
"Arab banks are starting to look outward again," says Iyad Malas, regional capital markets manager (Central Asia, Middle East, North Africa), with the International Finance Corporation. "Many had burned their fingers in the 1980s and retrenched into home markets."
While no one expects an Arab bank to seriously challenge Citibank's global reach, many Arab institutions are looking at strategic alliances which can give them a competitive edge in selected markets or with certain products and services.
Malas believes the banks will "selectively" look outward, looking first to opportunities in neighbouring regions of Central and South Asia, before moving back into money centres.
In fact, there are several areas where...