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Are Middle Eastern lenders losing ground to international heavyweights?

The increasing participation of international lenders, including Asian banks, on debt transactions in the Middle East is a sign that local lenders are suffering from a shortage of liquidity. However, deposit rates are increasing in some Gulf countries, and there is still liquidity in some countries’ banking sectors, although lending has been contained to banks’ local markets.

May 26, 2016 // 5:38PM

A number of recent and upcoming bond and sukuk transactions in the Middle East have seen heavy participation of many international lenders as opposed to local and regional banks.

Dubai’s DP World’s US$1.2bn sukuk saw participation from Citigroup, JP Morgan and HSBC. The former two also participated on Abu Dhabi’s US$5bn Eurobond alongside Bank of America Merrill Lynch, which alongside Citigroup and HSBC are also participating in Qtel’s upcoming bond.

Citigroup and HSBC were also active on Bank Muscat’s recent US$500mn Eurobond, which alongside JP Morgan acted as coordinators on Qatar’s US$9bn Eurobond.  

“Both in Oman and in Saudi Arabia there has been a slight crowding out of local banks and international lenders are increasingly prevalent,” said Dr Jamil El Jaroudi, CEO of Bank Nizwa in Oman.

“The pricing on any deal is indicative of whether a majority of international or local banks have participated.”

Although local lenders have still been present on a number of transactions, their participation is subject to the role they can play.

“Whether there is participation from local lenders depends on the role in which any bank could participate,” El Jaroudi added.

With liquidity in the Middle East tight as a result of low oil prices, banks are looking to attract capital from other sectors of their respective economies.

Many of the region’s banks are trying to attract liquidity from outside the banking sector. Deposit rates have increased, and in Oman are over 4%.

Mansur Mannan, Director at Tejara Capital noted that international banks have always participated in the Middle Eastern sphere.

However, it does appear that certain lenders have proved to be particularly active. “HSBC has been very active in the sukuk markets in the region, and is keen to develop the sukuk market in Saudi Arabia,” he added.

The increase in activity from certain international lenders could be more pronounced as a result of liquidity drying up in the local markets.

“The liquidity of local banks is drying up as a result of lower revenues from petrodollars and local banks have begun to focus on internal deals much more. Cross border lending amongst Middle Eastern banks has decreased.”

Alongside many international banks based in the West, Asian lenders have increasingly established a larger presence across the Middle Eastern sphere. Although Japanese banks such as MUFG are present elsewhere, Chinese lenders are beginning to operate in Oman.

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