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GCC banks look to US and Europe

Dubai's Mashreq is among the GCC banks looking for growth in the US and Europe Reuters
Dubai's Mashreq is among the GCC banks looking for growth in the US and Europe
  • GCC banks seek growth overseas
  • Just 56 US and Europe branches
  • Turkey and Egypt ‘high risk’

GCC banks may be forced to look overseas to fulfil growth ambitions as home markets become increasingly saturated, experts say.

While some banks have already ventured abroad – mainly into Turkey, Egypt and Pakistan, which constitute nearly a half of their presence outside the Gulf – more developed markets such as the US and Europe remain untapped.

Earlier this month, Ahmed Abdelaal, the CEO of Dubai-based Mashreq, said “intensified efforts” in well-established markets such as the UK, Hong Kong and the US are set to fuel growth, alongside a heightened focus on markets within the GCC, India and Egypt.

The bank’s subsidiary Mashreq Global Network plans to double its workforce in Egypt.

Turkey (2,156), Pakistan (1,147), and Egypt (745) constituted 48 percent of all overseas branches of GCC-based banks, while the US and Europe added up to just 56 branches as of 2022, according to figures from Marmore Mena Intelligence, a subsidiary of Kuwait Financial Centre.

Large populations and low penetration of banking services compared with the GCC have historically attracted banks to Turkey, Pakistan and Egypt.

But GCC banks with Turkish subsidiaries recorded about $950 million of net monetary losses in the first half of 2022, and Fitch Ratings says the exposure is increasingly credit-negative.

Dubai’s Emirates NBD owns Denizbank, and Qatar National Bank owns QNB Finansbank, the country’s eighth and ninth largest banks by assets, S&P Global data shows. Kuwait Finance House’s Turkish subsidiary Kuveyt Türk is ranked 10th largest. 

In Egypt, QNB Alahli is the country’s fourth-largest bank by assets while First Abu Dhabi Bank Misr, a subsidiary of the UAE’s largest bank, is seventh. 

Abu Dhabi Islamic Bank and National Bank of Kuwait also have sizeable Egyptian subsidiaries. 

S&P Global Ratings noted in a report earlier this month that GCC banks’ exposures in Turkey and Egypt remain “high risk”. 

Nonetheless, First Abu Dhabi Bank Misr reported a 131 percent rise in net profit for 2023 to $340 million this week while NBK-Egypt said net profit also more than doubled to $130 million.

“Despite the prevailing economic challenges in emerging markets like Turkey and Egypt, expanding into these regions undeniably offers the potential for higher growth rates,” says Ali Metwally, director of economic intelligence at ITI Consulting.

Islamic banking segment

Marmore analysts added that as GCC banks face home saturation, expansion beyond Mena will mean carefully assessing untapped regions while establishing leadership in the Islamic banking segment.

Vijay Valecha, chief investment officer at Century Financial, says that, at a time of a healthy and high operating margin scenario in the Gulf, the pressure is increasing on them to announce major expansion plans in developed markets. 

“To start with, the stakes are incredibly high,” he says. “These banks still lack a major presence in advanced and developed economies like the US and Europe… The competition will be immense for GCC players in these markets… but they have to evolve.”

GCC banks are highly concentrated in their local countries, with 45 percent of their branches situated in the region. 

With restrictions on foreign ownership, this effectively creates a captive market, which leads to higher margins and better cash flows.

“This is not solely about mitigating the impact of oil prices on government deposits but also about overcoming limitations to growth within the GCC,” Metwally says.

However, while the benefits are enticing, expanding into the US and Europe in pursuit of growth also comes with risks for banks based in the GCC.

Strong competition

“Competition will be fierce, and reputable GCC banks will be cautious about jeopardising their standing by struggling to compete or attract customers abroad,” says Metwally. “Naturally, no bank wants to be labelled as a failure in international endeavours.”

Experts say Islamic banking could offer a way into new markets for GCC players. Refinitiv forecasts the value of the global Islamic finance industry could reach $6 trillion by 2026. 

There are around 3.5 million Muslims in the US while there are 44 million in Europe, representing 5 percent of its total population. 

“The numbers indicate a sizeable target population base for GCC banks,” says Valecha.

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