Re-assessing the Arab-European Financial Relationship: Continuity in the Middle East, Change in Europe Andrew Cunningham Founder Darien Middle East www.darienmiddleeast.com French-Arab Banking Dialogue Forum Paris, 19 October 2012 darien middle east MIDDLE EAST, SHARIAH-COMPLIANT AND GLOBAL FINANCE
DISTRIBUTION OF REGIONAL GDP (Current $bn, 2010) SOURCE: WORLD BANK Maghreb Total Total 1,732 GCC Total 4 219 82 152 21 46 Algeria Morocco Libya Tunisia Mauritania 159 44 91 62 360 919 376 98 148 230 Saudi Arabia U.A.E. Kuwait Qatar Oman Bahrain GCC Maghreb 5 Egypt Iraq Other countries* * Syria, Lebanon, Jordan, Yemen Re-assessing the Arab-European Financial Relationship: Slide 1
DISTRIBUTION OF LOCAL COMMERCIAL BANK ASSETS ($bn, End 2010) SOURCE: CENTRAL BANK REPORTS Maghreb Total Total 2,313 GCC Total Algeria Morocco Libya Tunisia Mauritania 110 2 41 115 53 319 223 284 237 1,250 378 90 438 41 156 147 Saudi Arabia U.A.E. Kuwait Qatar Oman Bahrain GCC Maghreb 5 Egypt Iraq Other countries* * Syria, Lebanon, Jordan, Yemen Re-assessing the Arab-European Financial Relationship: Slide 2
SOVEREIGN CREDIT RATINGS: MIDDLE EAST, EUROPE AND OTHERS* Middle East Eurozone 17 E.U. non-eurozone Other Major Economies Aaa Austria, France, Germany, Finland, Luxembourg, Netherlands Denmark, Sweden, U.K. Canada, Switzerland, U.S. Aa1 Aa2 Kuwait, Qatar, U.A.E. Aa3 Saudi Arabia Belgium Australia, China, Japan, Korea A1 Oman Estonia Czech Republic A2 Slovakia Poland A3 Malta Baa1 Lithuania Mexico, Russia Baa2 Italy, Slovenia Bulgaria Brazil Baa3 Tunisia Spain Latvia, Romania India, Indonesia Ba1 Morocco Ireland Hungary Turkey Ba2 Jordan Ba3 Portugal B1 B2 Lebanon Egypt B3 C Cyprus Greece *RATINGS ON 10 OCTOBER 2012 (MOODY S RATINGS) Re-assessing the Arab-European Financial Relationship: Slide 3
SOURCE: GLOBAL FINANCE MAGAZINE, BASED ON FITCH SOLUTIONS DATA ARAB BANKS WITH ASSETS >$50bn (End 2011) 69.6 77.5 80.3 83.0 50.0 51.4 51.4 58.9 Abu Dhabi Commercial Bank Samba Financial Group National Bank of Egypt Al-Rajhi Bank National Bank of Abu Dhabi Emirates NBD National Commerce Bank Qatar National Bank U.A.E. SAUDI ARABIA EGYPT SAUDI ARABIA U.A.E. U.A.E. SAUDI ARABIA QATAR Re-assessing the Arab-European Financial Relationship: Slide 4
MIDDLE EAST ENERGY INVESTMENT NEEDS ($bn) SOURCE: MENA ENERGY INVESTMENT OUTLOOK. ECONOMIC COMMENTARY OCTOBER 2012 BY ALI AISSAOUI. WWW.APIC/COM/RESEARCH APICORP estimates the Middle East requires $740bn in capital investment for energy projects during 2013 2017. 107 125 The total annual volume of debt of $58bn [which results from APICORP s estimates and assumptions] is much higher than the $44bn achieved in the record loan market of 2010. 56 68 71 Iraq Iran Algeria U.A.E. Saudi Arabia Re-assessing the Arab-European Financial Relationship: Slide 5
European Financial Markets, the view from the Middle East n The Low growth environment n Sharp fall in creditworthiness of both sovereigns and banks (though key sovereigns such as France, Germany and U.K. remain AAA-rated) n Huge increase in regulatory burden for financial institutions n Regulatory uncertainty around key initiatives Banking Union/changed supervisory structure for banks Possible separation of client-based and proprietary trading Domicile of clearing houses Implementation of Basel 3 liquidity rules Long-term position of The City of London/U.K. within European Union n Major European banks reducing medium/long term funding to Middle East Re-assessing the Arab-European Financial Relationship: Slide 6
Huge increase in regulatory burden for financial institutions [Heavy regulation] can boost confidence if it increases transparency in the market, but that assumes that regulators perform their roles efficiently. The recent global financial crisis happened under the eyes of regulators. RISK MANAGER AT A LEADING MOROCCAN BANK The impact [of recent European financial market regulation] for individuals has been a genuine nightmare when opening an account with a European financial institution. The amount of paper work and documentation required is as big as a book! GULF BASED ADVISOR TO AN ASIAN ASSET MANAGER Re-assessing the Arab-European Financial Relationship: Slide 7
Regulatory Uncertainty n Bank restructuring: Liikanen Report, Volcker, Vickers n Differing views over implementation of Banking Union n Uncertainty over timescale of implementation of Banking Union n Uncertainty over domicile of clearing houses (Euro-clearing to take place only in Euro-zone countries?) Re-assessing the Arab-European Financial Relationship: Slide 8
Effect of new liquidity rules European banks are less keen to do medium and long-term funding the Americans have already pulled out.[but] people are still chasing yield and this part of the world still offers some attractive returns. CHIEF EXECUTIVE OF GULF-BASED BROKERAGE HOUSE/ASSET MANAGER Little evidence of European banks reducing overseas interbank lines the change is being seen in medium and long-term funding. Re-assessing the Arab-European Financial Relationship: Slide 9
Arab Financial Markets/European Financial Markets: The Future n Opportunities/Strengths lie in continuation of long-term factors Cultural/demographic ties (Maghreb-France; Gulf-London) and physical proximity Availability of technical financial expertise, especially in field of Islamic Finance Less litigious environment than U.S. n Threats/Weaknesses lie in more recent initiatives rooted in re-regulation of Europe s own financial markets: Increased regulatory burden Reduction in overseas operations overseas Re-assessing the Arab-European Financial Relationship: Slide 10