Re-assessing the Arab-European Financial Relationship: Continuity in - - PowerPoint PPT Presentation

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

Re-assessing the Arab-European Financial Relationship: Slide 1 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

9 1 9 2 1 9 3 6 8 2 1 5 2

9 8 4 6 3 7 6 2 3 1 4 8 2 1 GCC Maghreb 5 Egypt Iraq Other countries* Saudi Arabia U.A.E. Kuwait Qatar Oman Bahrain Algeria Morocco Libya Tunisia Mauritania

* Syria, Lebanon, Jordan, Yemen

4 4 1 5 9 9 1 6 2 4

Total 1,732 GCC Total Maghreb Total

DISTRIBUTION OF REGIONAL GDP (Current $bn, 2010)

SOURCE: WORLD BANK

Re-assessing the Arab-European Financial Relationship: Slide 2 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

1 , 2 5 2 2 3 3 1 9 2 8 4 2 3 7

1 5 6 4 1 3 7 8 4 3 8 1 4 7 9 GCC Maghreb 5 Egypt Iraq Other countries* Saudi Arabia U.A.E. Kuwait Qatar Oman Bahrain Algeria Morocco Libya Tunisia Mauritania

* Syria, Lebanon, Jordan, Yemen

4 1 1 1 1 1 5 5 3 2

Total 2,313 GCC Total Maghreb Total

DISTRIBUTION OF LOCAL COMMERCIAL BANK ASSETS ($bn, End 2010)

SOURCE: CENTRAL BANK REPORTS

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 Lebanon B2 Egypt B3 Cyprus C Greece

Re-assessing the Arab-European Financial Relationship: Slide 3 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

SOVEREIGN CREDIT RATINGS: MIDDLE EAST, EUROPE AND OTHERS*

*RATINGS ON 10 OCTOBER 2012 (MOODY’S RATINGS)

Re-assessing the Arab-European Financial Relationship: Slide 4 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

50.0 51.4 51.4 58.9 69.6 77.5 80.3 83.0

Qatar National Bank

QATAR

National Commerce Bank

SAUDI ARABIA

Al-Rajhi Bank

SAUDI ARABIA

Samba Financial Group

SAUDI ARABIA

Emirates NBD

U.A.E.

National Bank of Abu Dhabi

U.A.E.

Abu Dhabi Commercial Bank

U.A.E.

National Bank of Egypt

EGYPT

ARAB BANKS WITH ASSETS >$50bn (End 2011)

SOURCE: GLOBAL FINANCE MAGAZINE, BASED ON FITCH SOLUTIONS DATA

Re-assessing the Arab-European Financial Relationship: Slide 5 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

Iraq Iran Algeria U.A.E. Saudi Arabia

56 68 71 107 125

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.

“ 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.”

Re-assessing the Arab-European Financial Relationship: Slide 6 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

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 7 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

Huge increase in regulatory burden for fjnancial 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 8 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

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 9 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

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 10 French-Arab Banking Dialogue Forum Paris, 19 October 2012 Andrew Cunningham www.darienmiddleeast.com

darien analytics

F I N A N C I A L M A R K E T A N A L Y S I S

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