Middle East Political Unrest Helps Private Bankers

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Its boom time for private bankers as they target the rich amidst political unrest in Middle East. Banks such as UBS AG and Royal Bank of Scotland Group Plc (RBS) are targeting the rich people for wealth management operations. The Middle Eastern clients are worried about the regional unrest and seek to protect their cash.

Albert Momdjian, who was with Credit Agricole SA, will join UBS in August to head and expand its wealth management unit in the emerging markets. For RBS, Coutts plans to increase the staff strength over four years to meet the demand in wealth management.

Julius Baer Group Ltd. last month hired Edmond Carton of Credit Suisse AG to head its Middle East business. The Barclays have also geared up to target Middle East clients.

According to the Florence Eid, chief executive officer of Arabia Monitor, some of private savings have already been transferred abroad to international banking centers.

Transfers

The regional unrest is spreading across the gulf Syria, Yemen, and Saudi Arabia. This is prompting the wealthy to turn to stable markets to protect their wealth.

Deposits in U.A.E. banks have been increased by 7 percent to 1,123.5 billion dirhams in the first five months of the year.

Amid the political unrest, some governments in Western Europe, have frozen the assets of political figures associated with the dictatorial regimes.

This has also led to rise in transactions, according to Boston Consulting Group report. So the wealth is transferred to those countries where there are no such actions against politically exposed persons.

Recruitment

Banks have either relocated or started hiring staffs for managing their wealth management unit.

Emirates NBD plans to hire at least 300 people for sales and private banking, while the Abu Dhabi Islamic Bank (ADIB) plans to start a wealth management division this year. They have hired former HSBC regional CEO Stuart Crocker to lead the operations.

Long-term market

The Middle East region is considered as a potential market in terms of long-term growth. The economic expansion and rising oil prices are driving prosperity. Several international private banks have relocated their managers to gulf region to tap the wealthy.

The number of high-net-worth individuals in the Middle East rose by 10.4 percent to 400,000 last year. The combined wealth rose by 12.5 percent to $1.7 trillion. The rate of growth in the size and wealth of the regions high-net-worth individual population topped than other regions. However, due to the financial crisis in 2009, the growth of high-net-worth population in the Middle East lagged behind all other regions.

Basel III Rules

Basel III rules are global regulatory standards regarding bank capital adequacy and liquidity agreed by the Governors and Heads of Supervision, and endorsed by the G20 Leaders at their November 2010 Seoul summit.

The Framework sets out higher and better-quality capital and better risk coverage. The leverage ratio measures to promote the build up of capital that can be drawn down during periods of stress.

With Basel III rules, the domestic banks are cash strapped at the moment and are competing for clients. Wealth management operations are attractive to banks as they require less capital and provide funding for loans. They generate stable fees from investment services.

U.A.E.-based banks faced a shortage of deposits due to the global financial crisis in September 2008 as foreign investors speculating on a revaluation of the currency pulled out freezing the credit markets.

The loan-to-deposits ratio has declined to 93.4 percent in April this year, from 108 percent at the end of 2008. U.A.E.-based banks are also looking at wealth management to lift revenue as income from investing banking has declined.

According to Mark Stadler, global market head of HSBC in the Middle East and North Africa, said They are looking at this as a way to address their asset deposit ratio imbalances and get large deposits.

Graham Hayward, of Pricewaterhouse Coopers in Bahrain said, The barriers to entry for international banks are high, but the opportunities are a lot higher.

Source: Base lII accord, Bloomberg, Arabian Business

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