| Kippreport.com

Eurozone and the GCC

July 13, 2012 11:37 by kippreport

The Missing Banks

The first and direct implication of the eu­rozone crisis would be felt via its banks, which have been struggling in the past six decades. As leading French, German, Spanish and Italian banks struggle to cope with their ballooning bad debts and try to bring the situation under control, the first reaction is for them to withdraw from the overseas markets and focus on their do­mestic markets. The first mission for banks is to reduce their bad debts their balance sheets, and many of them have preferred to sell off assets in overseas markets in order to raise funds.

Although by and large the GCC is a capital-rich area, some parts of it, notably Dubai, have run amok with their borrow­ings and also as companies and govern­ments implement large infrastructure projects, a lot of those are due for financ­ing right now. Historically, a lot of Euro­pean banks have provided that financing. But, as funding dries up in Europe and as Basel III regulations kick in, governments are putting in strict capital requirements and hence, as a result, those sources of income, sources of cash, will no longer be available.

“There will be a bloodbath. Watch this space,” cautions the chairman of a leading financial services company from the region, adding, “this is going to get extremely crazy. We have the European banks retreating into their shells and so far we have not seen that kind of appetite from Asian or other banks to be able to replace them, and on the other hand we have project financing requirements of zillions of dollars, so where will all of this come from? We are headed for a debacle here,” he says.

But some others see an opportunity even in this situation. “There is an aspect of it which is positive for us. The with­drawal and retreat of the European banks actually played to our strengths, because we remain open for business for our cli­ents. And this is good for us. So, if you go back to the Lehman Brothers crisis of 2008, post that we actually gained market share. Because a lot of banks, not just European, others also retreated and we stayed open for business. We picked up market share,” says V Shankar of Stanchart.

But some other bankers believe that instead of retreating from the region, the European banks have instead become ex­tremely aggressive and competitive, driv­ing the banking margins down on major projects, by offering deals to large clients at prices that some of the local banks are also finding very difficult to match.

“To be honest I don’t see this with­drawal in Qatar. I know a lot of Euro­pean banks and funds are still coming to the region, especially to Qatar and Saudi Arabia, because it’s a safe haven. As far as I am concerned I am a banker and the European banks are competing with me and killing us by giving even lower rates than what we give in Qatar. So it’s not true what people say. I think they are smart to come to the region, because it is bet­ter to invest your money in Qatar than in Greece,” says Hamad Al Thani, chairman of Al Khaleeji bank in Qatar. 

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Tags: Barak Obama, economic outlook eurozone crisis, emirates, Middle East, political and fiscal masters of Europe, President of the United States