Gulf Banks Increase Lending To Asia And Africa

| May 23, 2015

With business booming in Asia and Africa, Gulf banks are increasingly wanting a larger slice of the action. Previously they had been viewed largely as junior partners in the international syndicated loans market, however this is gradually changing as African and Asian governments and security stabilize, and prosperity increases in the regions.

Stanbic Bank Uganda

Stanbic Bank Uganda

This year, an $85m loan has been taken out by Stanbic Bank Uganda, pointing to an emerging trend in the international capital markets, and the appetite for equity from the Gulf to be involved in Africa and Asia. The bank had originally hoped to raise $75m, but had to expand this because of the strong interest from Gulf banks.

The participating banks included

  • Dubai’s Emirates NBD
  • Al Ahli Bank Kuwait
  • Qatar’s Al Khalij
  • Commercial Bank of Qatar

There has been regulatory and capital constraints placed on European banks which is not true of the banks in the Gulf. So it’s easier for them to provide liquidity. It was only a few years that the participation of Gulf banks was more of a junior partner in the syndicated loans market, with most of them rarely taking key management roles, or dominating the volume of money provided. The picture has started to change in the last 6 months, and with a wide variety of reasons.

Asian & African Loan Success

When Insurance Corporation of British Columbia (ICBC), a subsidiary of Industrial and Commercial Bank of China went to the market for fundunging in November 2014, they managed to raise $500m with a 3 year loan. 8 out of 10 of the banks that were involved were from the Gulf, and the 3 lead arrangers and financiers where the Qatar National Bank, and Emirates NBD.

The South African bank FirstRand managed to raise a $235m 2 year loan only last week, and the entire deal was syndicated to 9 Gulf lenders including the Emirates NBD, who was the sole arranger.

Asian companies from Indonesia have also tapped into this Gulf loan market with airline Garuda Indonesia and the auto financing firm Astra Sedaya Finance, both receiving successful lending bids from the Gulf.

Liquidity Cooperation

There has been an expansion of the lending from the banks in the Gulf Cooperation Council (GCC) to Asia and Africa, and this new source of funding is providing much needed liquidity within the markets. This has been partly driven by the growth experienced by the Gulf, from oil revenues, and the rising wealth of the new middle class there. As a result, the Gulf has continued with a rise in branch offices located in Asia and Africa, taking advantage of this rapidly increasing investment cooperation.

The head of investor relations at South African bank FirstRand, Sam Moss, has said there is more trade flows occurring in the region, and they want to go further and strengthen their footprint, and exposure. She said that they hoped it would become possible in the near future for African banks to be able to take out frequent loans with a longer maturation date of 2 years in the Gulf.

The Gulf is growing as a potentially attractive loan market due to the Gulf banks being awash with money. Even since the drop in oil export revenues, the governments have managed their assets stringently to ensure that the total mount of deposits inside the banking system are continuing to grow, resulting in consistent liquidity.

Gulf Banking Approach

Most of the banks in the Gulf have already built up capital cushions to avoid any shocks, so they have scope to lend. This contrasts with the approach from Western banks, which due to their over exposure in the 2008 financial crisis, has resulted in regulatory pressures and cost cutting measures to ensure they have adequate capital reserves.

Traditionally corporate borrowers in Asia have relied heavily on Taiwanese banks for the retail syndication of their loans. Taiwanese banks have recently however pulled in the reigns due to their cost of funding rising, so Asian firms are turning to the Gulf in the hope of diversifying their loan sources. As long as bank deposits in the Gulf region continue to grow, so will the lending, and 2015 has already seen a 100% increase compared to 2014, and this is expected to increase by the same amount in 2016.

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