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Oil prices to hit Arab banks` growth
The Daily Star

BEIRUT: The drop in international oil prices and heavy regulations will slow the growth of Arab banks in 2015, the secretary-general of the Union of Arab Banks said Wednesday.

“I don’t expect growth in the Arab banking sector in general due to the fall in oil prices in the international markets and the heavy regulations in some of the states, which checks the rise of assets and deposits,” Wissam Fattouh told The Daily Star.

Fattouh, however, assured that Lebanese banks would not be affected by the drop in oil prices, adding that growth in profits and assets in 2015 would be reasonable.

“Many of the leading banks are expanding their operations to Turkey, Egypt and Africa to diversify their profits and revenues,” Fattouh said.

Oil prices have dipped by more than 50 percent since June 2014 amid a global economic slowdown and fuel glut in the markets.

Most OPEC members depend heavily on oil and gas to generate revenues to finance essential development projects in their countries.

Fattouh added that many oil companies have seen their assets fall as the prices of crude have taken a dive, and most of these firms have assets in Arab banks.

“If the prices of oil continue to trade between $60 to $70 over the next two years then the assets of Arab banks in general will not rise,” he argued.

Fattouh added that most of the profits of oil companies tend to pour into the Arab banks, so naturally when net incomes sink so will the profits of lenders in Arab countries.

Last month, the chairman World Union of Arab Bankers Joseph Torbey warned that economic growth in Arab countries may slow next year in light of the drop in oil prices.

“If our liquidities count to a big extent on the prices of oil, then the scene may look mystifying if not bleak,” Tobey warned.

The consolidated balance sheets of all Arab banks up to September 2014 reached $3.1 trillion, or 105 percent of Arab GDP.

Arab banks recorded a growth of 10 percent in 2013 compared to GDP growth of 3.4 percent in the Arab states.

Customer deposits of all Arab banks in the third quarter of this year stood at $2 trillion while private equity stood at $335 billion.

Fattouh underlined the importance of real economic growth in the Middle East, saying Arab banks should finance this growth through development projects.

He cited the example of Dubai, where commercial banks have heavily financed development and commercial projects.

“Of course one of the conditions for banks to finance projects in the Arab countries is to have political and security stability. If we don’t have this condition then banks will be reluctant to extend lines of credits to these states,” Fattouh said.

He said stability in Dubai and the decision of its rulers to invest heavily in infrastructure such as highways and airports were among the main reasons which prompted Arab banks to finance these projects.

“This emirate is not counting on oil or services but investments in productive sectors and these investments have paid off eventually,” Fattouh said.

The heavy regulations in some Arab states have also discouraged Arab lenders from financing essential development projects.

“These heavy regulations have scared off investors. Some of the investors were thrown in jail because there were no clear laws to protect their investments,” he added.

Fattouh did not believe that remittances from the Gulf countries would diminish as a result of the drop in oil prices.

Most experts say that Saudi Arabia, the United Arab Emirates, Qatar and Kuwait have trillions of dollars in assets which can easily finance development projects.

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