News Column

Middle East banks eye opportunities for global expansion

August 10, 2014

Babu Das Augustine Banking Editor

Dubai: Banks from emerging markets including those from the Middle East are expected to become global players in the near future according to a recent study by Deloitte.

Rising world trade flows, increased gross domestic product (GDP), a growing middle class and new technologies are expected to help banks based in emerging markets expand into developed markets in the coming year.

Until recently the emerging markets banking sector story was about the growth of the emerging markets and how institutions from the developed world are looking to benefit from these fast growing markets. "But the untold story is the reverse; banks based in emerging markets have been gaining strength and with that strength, are now looking to expand beyond borders," said the study.

Emerging markets banks in general have the experience of operating in volatile markets, combined with their knowledge of how to reach unbanked and under banked population, are better positioned to achieve a successful expansion to developed and other emerging markets.

While many are facing limited expansion opportunities in their home markets diversifying away from the relatively volatile markets is one of the key reasons for many banks to look abroad for expansion.

"The banking systems in the Middle East and many emerging markets, which were less exposed to the complex and toxic products and therefore less impacted by the financial crisis of 2008, benefited from opportunities in their domestic markets and have grown their operations and expanded locally thus resulting in stronger balance sheets and larger capital base," said Joe Al Fadl, Partner and financial services industry leader at Deloitte Middle East.

Leverage strengths

"This relative domestic expansion and growing means allow these banks to invest in growth opportunities. Moreover, many of the large banks are considering to leverage their strengths and relative efficiency in their operating model by looking to opportunities of expansion into new markets," said Al Fadl.

According to Deloitte, over the last several decades, emerging markets-based banks have followed different paths in expanding their reach around the world. Many Banks have looked to the Middle East region as the next frontier, due to its proximity to the Asian markets, and its untapped potential, as foreign banks had minimal presence in the region at that time. In fact, the World Bank notes that acquisitions from emerging markets are on the rise, projecting the annual value of cross-border M&A transactions to double by 2025, outpacing the underlying GDP growth rates in emerging-market firms' home countries.

New markets

"Even though Emerging markets-based banks still have domestic expansion opportunities and growing market needs for innovative banking products and services, they are also looking for expansion beyond national borders as their customers expand into new markets and their citizens immigrate to new countries," added Al Fadl.

Today, emerging markets and developed markets each account for half of the world's GDP. However, in the future, the report projects emerging markets to account for more of the global GDP with developed markets accounting for less. Additionally, according to the Fortune Global 500 list the number of North American and European financial services firms on their list has declined, while the number of those based in Asia, Central and Latin America has risen.

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Source: Gulf News (United Arab Emirates)

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