Strength in adversity: the Middle East presents its annual listing of the region's top 100 banks.

Author:Ford, Neil
Position:BUSINESS: TOP 100 MIDDLE EAST BANKS - Cover story - List

Our 2009 survey of the Top 100 Middle Eastern Banks has a familiar ring to it. Saudi Arabia's National Commercial Bank continues to occupy the top spot but otherwise competition in the Saudi market is proving increasingly intense.

Elsewhere, growth may have slowed but the region is showing few signs of the international financial doom and gloom, with many banks registering double-digit growth. But if there is one lesson that stands out from our past few surveys, it is that banking liberalisation pays dividends in terms of creating globally competitive financial institutions.

There is little sign of the ongoing global economic slump having any substantial impact on the biggest banks in the Middle East and North Africa.

This may be because most of the financial results cover the 12 months up until the end of December 2008, but could also be because the region has partly been sheltered from the economic storm, with the rise of Islamic banking and continued strong oil revenues continuing to feed regional growth. The strength of the Middle East banking sector is emphasised by the fact that capital of $277m was needed to secure a place in our Top 100 in last year's survey, but that figure has now risen to the $330m recorded by Credit Immobilier et Hotelier of Morocco.

At the top of our table, National Commercial Bank's lead over its nearest rival has been massively cut over the past year, with its capital falling from $8.068bn in 2008 to $7.343bn in this year's survey.

Yet even Al Rajhi's performance is eclipsed by that of Riyad Bank, which has seen its capital grow from $3.516bn to $6.851bn in just 12 months, propelling it up our table from ninth to third place and giving Saudi Arabia the two biggest banks in the region in the process. Given such rapid growth, it will be interesting to see whether National Commercial Bank can manage to hang on to the top spot next year.

Part of Riyad's success can be attributed to its growing presence in large-scale Islamic finance. In August, for instance, it announced a $1 billion Sukuk for the $6bn oil refinery to be developed by a joint venture of Saudi Aramco and ConocoPhillips at Jubail with refining capacity of 400,000 barrels a day (b/d).

In partnership with WestLB AG, it is also to arrange project finance for the Jabal Sayid copper project, including structuring, sourcing and evaluation of debt finance proposals. The bank has helped finance some of the kingdom's largest infrastructural projects, arranging syndicated loans in the mining, oil, power, water and petrochemicals sectors. Al Rajhi has now begun to expand overseas and plans to complete its 50-branch network in Malaysia by the end of next year, just 20 months after it received its banking licence to offer non-ringgit Islamic products in the country.


Nevertheless, there are signs that the Saudi economy could be more deeply affected by the crisis during the second half of this year. The National Commercial Bank's Business Optimism Survey certainly produced more negative results in the second quarter of this year than for the first quarter. Said Al Shaikh, the senior vice president and chief economist at the bank, commented: "The survey clearly reflects an overall decline in business sentiment regarding the economic environment during the next three months, which indicates the negative impact from the global financial crisis on the kingdom's economy, albeit to a lesser degree than it did for other countries."


Beyond the top three, Emirates NBD has again enjoyed a good year following its creation as a result of the merger of Emirates Bank Group and National Bank of Dubai in 2007. The bank was ranked fifth with $4.828bn capital in last year's survey but this figure has now grown to $5.500bn, which pushes the United Arab Emirates' (UAE) leading bank up to third, within striking distance of the two biggest Saudi banks.

A breakdown of the number of banks listed by country provides interesting reading. Our table is dominated by financial institutions based in the Gulf states and also tilted towards those countries that have done most to open up their banking sectors. Efforts by the UAE and Bahrain to establish themselves as global banking hubs are clearly paying off, as they boast 17 and 10 banks in the Top 100 respectively. A further 25 banks out of the Top 100 are provided by Saudi Arabia, Kuwait and Qatar. That such success is not merely attributable to oil income is underlined by the fact that two other big oil and gas producers, Algeria and Libya, have just five banks in the Top 100 and none of these makes it into the higher reaches of our survey.

The Central Bank of Bahrain (CBB) has been tasked with helping to create a more diverse banking industry in the kingdom and has introduced incentives for the collective investment undertakings industry to encourage the emergence of hedge funds and other alternative investment vehicles. In addition, the Bahrain Financial Exchange has been licensed and banks can exchange Bahraini dinar for US dollars without charge, while the Central Bank has also sought to minimise the impact of the financial crisis.

Rasheed Al Maraj, the governor of the CBB, said "We in Bahrain have a free economy and the CBB can work with banks and businesses to make lending attractive. We are confident about the quality of the banks. We do not see any problems yet on the quality of their loan portfolios. Things have changed dramatically and one of the biggest changes, not only in Bahrain, the GCC and across the globe, is a lack of confidence."

Despite the success of UAE banks, Goldman Sachs has warned that they may see growth curbed by difficult conditions, which have already affected profits this year. In a statement, it argued: "We ... expect funding trends to become more challenging going forward, which will negatively affect UAE banks' growth potential. But while we expect the cost of risk to remain high and top-line pressure to emerge due to narrowing margins and lower volumes, we estimate that profitability levels in general will remain attractive."

Part of the reason for the fall in profits is the rising level of loan defaults, which Goldman Sachs warns "may remain elevated for the rest of the year". In addition, falling corporate profits and real estate prices are affecting the country's overall financial health. Several UAE banks were exposed to debt problems at Saad Group and Ahmad Algosaibi & Bros but difficulties in the real estate market should not have too big an impact given that most property finance is heavily secured.

Iranian banks are also beginning to feature more prominently in our table, possibly because of the popularity of Islamic banking in that...

To continue reading