 |
| Jody Sanderson and Omar Mehanna |
Senior bankers at HSBC have warned that the local and regional banking market is overcrowded, which may lead to an inability for banks to invest in customer services if allowed to continue unchecked.
Jody Sanderson, managing director and head of global banking at HSBC, speaking yesterday at a media roundtable, said that the “market is highly over-banked – its very competitive. Based on the number of people in Qatar compared to the number of banks here, for a consumer or customer it’s a great situation in many ways because there is a lot of competition, but at the end of the day you want a very healthy and strong banking environment, and too much competition can actually lead to some negatives where you may end up having banks that cannot invest properly because they’re not actually profitable. That’s something that you wouldn’t want, having a banking sector where it’s so competitive that the banks aren’t prepared to invest further to service their customers in the way that they need to. I don’t think it’s got to that point yet here, but it is a very, very competitive market and there are a lot of local banks and a lot of foreign banks that are chasing the same pie.”
Sanderson added: “Banks are looking at mergers, foreign banks are looking at if they want to stay investing in the market, and you may see some leave. Today the banks aren’t really in good shape, but we’ll see how it is going forward.”
Omar Mehanna, managing director and head of advisory, HSBC MENA, said that this is a region-wide problem, explaining that while in the UK four banks cater to a population of 60mn, the opposite is true for the Gulf region, relatively speaking.
In Qatar a number of banks, including al khaliji and IBQ, have recently tried to go through with mergers.
Mehanna said that generally speaking, mergers of this sort are not going through due to “politics and economics … especially when relative valuations were unrealistic. Outside the financial sector the disconnect between buyers and sellers is narrowing as a function of the global recession and (political upheaval), sellers are becoming more realistic in terms of their expectations and are waking up to the reality that they have to do something,” and mergers and acquisitions (M&A) are the only option available to them.
Mehanna said that general M&A trends have changed in the last three to four months as strategic investors looking to acquire within the region have shelved their plans due to political instability. With the political situation easing, investors are revisiting their plans.
Mehanna said that prospects for M&A in 2012 are very difficult to predict at this stage, but despite the many challenges from an economic and geopolitical perspective we should still expect to see a modest increase, particularly in the number of deals and more specifically in the mid-market segment around the $100-250mn space. The aggregate deal value increased by 10% this quarter compared to last, and number of deals increased almost 30%. However, he explained that the regional market is still relatively small compared to the global arena, making up around 1% of the world market, so one or two large deals will skew the aggregate value. The banker said that it is difficult to predict “elephant” transactions, which are now more challenging due to the lack of availability of debt financing.
Looking at initiatives that may help boost M&A in MENA, Mehanna said that “any initiative to enhance and promote regional cross-border activity is very welcome.
He said that there is still a great need in the region for “improved regulatory architecture, corporate governance and reducing red-tape and bureaucracy, which would be step in the right direction towards addressing the issue.”
He warned, however, that this alone will not make a big enough difference as there are other issues that need to be addressed, of which only a few are under the control of governments and corporations.
After all, according to Mehanna, 20% of the syndicated loan financing in the MENA market is “actually provided by European banks, so when EU banks are under liquidity pressure that will impact on the region.”
HSBC continues to be the major foreign player in Qatar’s banking sector, with around 450 employees in the country, and Sanderson tried to explain why major foreign banks have such a small presence in Qatar. “For new foreign banks looking at the Qatar market, it looks very attractive,” he said. We’ve seen a lot of new banks come into the market and are struggling because you need a lot of patience, you can’t expect to come here and in 12 months to be at the top of league tables in anything, whether its debt or equity or M&A, you have to be prepared to invest and have people on the ground for the long haul.”
Sanderson said that after 60 years in the country, HSBC is well-placed here with its franchise, while other banks are “looking at it as they should have been here sooner and it’s very difficult for new entrants to penetrate.”
“You need to understand the market here, understanding how business works on the ground in Qatar is not something you will get in the first month or six months,” he explained. “For example if you move from New York to London or London to Hong Kong, business is done very similarly. Here business is done a bit different, you need to build long-term relationships. If you don’t have patience you won’t succeed here.”
Responding to reports about the possibility of a Qatar bond issuance, Sanderson said: “The state hasn’t been in the market for a couple of years, but if they did it will be well received. There are also a number of ‘Qatar Inc.’ companies and financial institutions that I know will be looking at the market at some point in time, it is an area that people will need to explore as part of their fundraising needs, but given the risk profile in Qatar I think they’re better placed to go to the bond markets than just about anywhere in the region.”
“They’ll be opportunistic, they do not have to do bond issue, so whether this is the right time or not - that’s to be determined and that’s what everyone will evaluate,” said Sanderson.
