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DOHA: As the bankable population in the Gulf region is structurally limited, banks in the region is looking for Egypt, Turkey and Asian countries to support their long-term growth, according to Standard & Poor’s.
The ratings agency said yesterday, banks in the Gulf are tempted by large and young populations of Egypt, Turkey and in Asian countries such as Indonesia.
These are also countries with visibly lower bank penetration, which signals long term growth opportunities.
“The total population of the Gulf countries is small at less than 50m. In addition, a large portion of the population comprises foreign workers who tend to have limited banking assets,” said Timucin Engln, S&P Credit Analyst. Mergers and Acquisitions (M&A) in 2012 in MENA were the highest since 2008, and buyers favoured the financial sector slightly more at 30.5 percent of transactions than telecommunications at 26.7 percent.
And Egypt and Turkey attracted much of the activity. An estimated 142 deals were announced or closed in Turkey for a total value of $10.1bn, and in Egypt, transaction volume reached $9.8bn from 38 deals, he said.
Timucin noted that the declining prices for bank stakes in emerging markets are a further buying incentive for Gulf banks.
Valuations of controlling takes in banks in key emerging markets were much richer prior to 2008 crisis levels given the number of interested parties, and relatively limited number of assets for sale.
“Egypt and Turkey were the top recipients of investments in their financial sectors in 2012 by Gulf banks. Two acquisitions in Turkey came out relatively lower prices than before 2008.”
The S&P analyst said Gulf banks are solid prospective buyers. These banks generally have capitalisation levels that exceed their international peers’.
For instance, S&P’s risk-adjusted capital (RAC) framework, which use to measure banks’ capital adequacy, indicates that the average RAC ratio for Gulf banks stood in the 12.0 percent to 13.0 percent range based on data on December 31, 2011.
That’s about 5 percent points higher than the 7.4 percent for the 100 largest rated banks based on data on September 30, 2011.
Gulf banks also generally operate with a healthy size of liquidity pools available to them. The strong capital position of the Gulf banks provides them with a large capacity to acquire overseas financial institutions.
The ratings agency expects Gulf banks to continue to seek growth opportunities in overseas markets in the next few years.
“There are more transactions in the pipeline for 2013. QNB has announced that it will continue to look for acquisition opportunities in Turkey and elsewhere. Emirates NDB is another Gulf bank that publicly advertised its intention to boost the contribution of revenues from overseas over the next few years”.