Best lending year since 2008 lost to Gulf banks as deposits drop

Seven foreign lenders are among the top 10 loan arrangers in the GCC this year, the most since 2011 and up from three last year, according to data compiled by BloombergBloombergDubaiThis year is stacking up to be the busiest for syndicated loans in the six-nation Gulf Cooperation Council since 2008. Too bad the region’s own banks are missing out.Seven foreign lenders are among the top 10 loan arrangers in the GCC this year, the most since 2011 and up from three last year, according to data compiled by Bloomberg. HSBC Holdings, Mitsubishi UFJ Financial Group and Sumitomo Mitsui Financial Group are among the top five.The waning profile of local banks in the Gulf region’s $350bn loan market is another symptom of the falling price of oil, which acts as a bulwark for the economies of countries from Saudi Arabia to the UAE. Declining oil revenue is hitting deposits, forcing banks to raise lending rates to compensate and pricing them out of deals.“This trend is going to become more pronounced next year, both in the loans and bonds market, as liquidity pressures persist from a lower oil price,” Andy Cairns, the global head of debt origination and distribution at National Bank of Abu Dhabi, one of three regional lenders among the top 10 loan arrangers, said by phone last week. “International banks who are not experiencing the same pressures from tighter liquidity are in a position to benefit and exploit that.”About $65bn of syndicated loan deals were signed this year, according to data compiled by Bloomberg. That includes Dubai World Corp’s $10.3bn restructured debt, which altered terms on existing loans. Saudi Arabian Oil Co’s $10bn facility, arranged mostly by Mitsubishi UFJ Financial, accounts for about 15% of the total.Stimulus programmes in Europe and Japan are helping to support bank liquidity in those regions. The European Central Bank announced an interest rate cut and a six-month extension to its bond purchases last week, and the Bank of Japan is buying as much as ¥12tn ($98bn) of Japanese government bonds each month as part of its plans to boost the economy.Just one of the six banks hired to help the Qatari government raise $5.5bn is a Gulf-based bank, a person familiar with the matter said this month. The country has the fourth-highest credit rating at Moody’s Investors Service.While the falling oil price dents Arab Gulf economies, some international banks still consider them less risky than other emerging markets. “International banks played a bigger role in this financing activity than in the recent past as GCC credits were perceived as being more attractive, in terms of risk and return, vis-à-vis certain other emerging markets,” Rezwan Mirza, managing director and head of corporate banking for the Middle East at Barclays said by e-mail on December 8.For Saudi Arabia, where oil income accounts for most of the government’s revenue, the retreat in energy prices contributed to a 4.7% slide in demand deposits in October from the previous month, or 50.5bn riyals ($13.5bn). It’s probably the biggest decline since the 1990s, Murad Ansari, a bank analyst at EFG-Hermes Holding in Riyadh, said last month.That helped raise the three-month Saudi Interbank Offered Rate, which is used to price some loans, to an almost seven-year high. A similar rate in the UAE climbed to the highest since May 2013.Brent crude has tumbled about 40% in the past 12 months to $40.70 a barrel.“Tightening liquidity at a regional level is likely to be felt more next year as deposits continue to dry up amid low oil prices and governments continue to plug budget deficits,” said Richad Soundardjee, the chief executive officer of Societe Generale SA for the Middle East. “In this changing environment, those international banks that have an appetite for the region will clearly have a greater role to play.”