While banks in Europe and United States are fighting hard to survive, banks in the Middle East and North Africa region offer safer haven to investors looking for less volatility and limited downside. At the moment, the MENA banking industry is among the safest in the world ?with minimal debt to GDP and a healthy core Tier 1 capital ratios.? Banking analysts say their exposure to Greek and other sovereign EU debt are minimum.
Audi Capital, a subsidiary of Bank Audi, reported: ?We believe that banks in Europe and the US potentially offer deep value but with a material downside risk. On the contrary we see MENA banks more suitable for investors looking for less volatility and limited downside.? Report also stated that: ?Despite the richer valuations, we think that the MENA banks? solid fundamentals, especially in Saudi Arabia and Qatar, will support them to be materially less impacted than developed banks in the current environment. We believe that MENA banks offer a hedged investment in the global banking universe.?
The profitability forecast of the US and European banks?is generally grim. US banks? Q3 profit estimates were cut by an average 45% by Citigroup Inc on the basis of a bleak outlook in equities and credit markets. While British banks face some tough regulations that require them to protect their retail lending activities and provision for extra capital of up to $11 billion. French banks also need to prepare for more setbacks amidst a rapid decline in their stock prices.
The report also notes that the regional financial services industry remains stronger in sharp contrast to the international global banking sector. The report noted that there was strong governmental support that benefited MENA banks from collapse during the global financial crisis in 2008.
The bullish outlook for Middle East banks is based on their strong fundamentals ? strong capital adequacy ratio and absence of exposure to sovereign debt. The MENA region benefits from low-debt domestic products, with the key economies delivering continuous fiscal surpluses. Other positive factors include access to cheap cost of funds and stronger liquidity position.
European banks, on the other hand, need $287 billion in new capitalisation, according to estimates by the International Monetary Fund.
The Audi report also cites asset quality with higher return-on-assets and strong return on equity.
Analysts are bullish on UAE, Saudi and Qatari banks. Growth of banks in these countries are expected to be driven by government investment and consumer spending along with public sector salary rise benefiting both economic growth and deposits.
Sources: Khaleej Times, Zawya