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Sun 6 May 2007 12:22 AM

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Foreign banks to cash in on Gulf projects

$1 trillion Gulf projects will be a bonanza for international banks.

Over US$1 trillion of projects planned by Gulf governments flush with cash from the oil boom promise to be a bonanza for international banks, bankers said at an Arab business conference on Saturday.

Foreign banks are better placed to compete for financing deals needed for the huge schemes in the oil and gas exporting region than Arab banks with less capital and expertise, they added.

The International Monetary Fund has urged Gulf governments to spend more of their record oil revenue to help solve trade imbalances. The fund estimates Gulf countries plan to spend about $700 billion in the next few years. They include Saudi Arabia, the world's top oil exporter.

Gulf officials participating at the Arab Economic Forum in the Lebanese capital said US$1.2 trillion worth of projects, mostly on infrastructure, oil and industry, were planned, without giving a timeframe.

"We have to concede that foreign banks have the capital and expertise to play the main role in the financial structuring for these projects," Makram Sader, secretary general of the Lebanese Banking Association, told the conference.

"Arab banks should learn from these banks. We don't want to repeat the old ways of opposing globalisation then becoming a victim of it anyway," Sader said.

Gulf countries have been gradually opening their banking systems to foreign competition as part of a policy to liberalise their economies and join international trade pacts.

BNP Paribas, J.P Morgan, and other Western banks were granted licenses to operate in Saudi Arabia. Their size dwarfs their Arab counterparts.

Total assets of Arab banks stand at around one trillion dollars, which remains less than one large Western bank, such as HSBC's US$1.8 trillion of assets. Deposits in Arab banks represent around two percent of the worldwide total.

Karim Souaid, a senior banker based in the Gulf, said it was natural for foreign banks to be the first choice for Gulf governments in investment and project banking, but the bankers making the deals were in many cases Arab nationals working for leading international banks.

"Arab banks have more advantage in retail, consumer finance and corporate lending. They also compete in certain deals such as privatisation and play a big role in buying of stocks on Arab markets," Souaid said.

"You win some and lose some. Some foreign banks withdrew from Arab markets after not making enough profit," he said.

Raed Charafeddine, a senior executive at Beirut based Fransabank, said Arab banks realised the gap in their investment and project financing divisions and could catch up quickly.

"They have the potential," Charafeddine said. "Expertise could be acquired along as with the capital to compete for all of projects."

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