After weathering the global financial crisis and local debt restructurings in the last few years, Gulf banks are expanding their regional footprint and venturing into business lines previously targeted only by their global rivals.
A slowdown in regional banking activity, coupled with large restructurings of state-owned entities, stymied profits around the turn of the decade as banks set aside billions of dollars to meet loan losses and restrained their lending appetite.
However, backed by a recovery in their home economies and strong capital positions, the banks are now drawing up regional growth plans and gaining share in businesses such as debt advisory services, private banking and brokerage activities, areas previously dominated by Western banks.
The crisis left Gulf banks with an opening, as some Western banks downsized regional operations to focus on repairing balance sheets back home and meet stricter capital and liquidity standards being imposed globally under the Basel III regulatory regime - a much easier task for cash-rich Gulf lenders.
"The key players are still here big time, but even they have different issues and are looking at where do they consolidate in certain areas, so that has given an opportunity for the local banks," Rick Pudner, chief executive of Dubai's Emirates NBD, told the Reuters Middle East Investment Summit.
Several major regional lenders expect profits to rise by around 20 percent or more this year as state spending on infrastructure and social welfare bolsters their balance sheets, and as they obtain higher fee income from new revenue streams.
Barwa Bank, a sharia-compliant Qatari lender, posted an 85 percent leap in net profit for the first half of 2013 and expects fast growth to continue, driven mainly by billions of dollars worth of infrastructure building in Qatar and growth in debt advisory and asset management business.
"We have invested heavily in our markets capabilities, in fixed income, sukuk origination activity in the Islamic capital markets, foreign exchange and market activities generally," Chief Executive Steve Troop said.
The bank helped arrange a $1 billion five-year sukuk for multilateral lender Islamic Development Bank this year.
Meanwhile, net profit growth at commercial banks in the United Arab Emirates is expected to accelerate to about 20 percent in 2013, the chairman of the UAE's banking federation said in September.
Even smaller names such as National Bank of Fujairah (NBF) are benefiting from economic growth in the UAE; the bank may open trade finance offices in Africa after setting up a financial advisory business in Dubai's tax-free financial zone this year.
"We've consistently seen over this year a 30 percent range of year-on-year growth in net profit and we see that continuing because it's not coming from a one-off," NBF's Chief Executive Vince Cook told Reuters.
A key result of the regional banking revival has been a renewed appetite for acquisitions among Gulf lenders, which want to lower their reliance on home markets.
Outside the Gulf, they are focusing mainly on emerging economies - the rest of the Arab world, Turkey, Africa and parts of East Asia - rather than developed, slow-growth markets in Europe and the United States.
ENBD, Dubai's top lender, is eyeing acquisition targets in Turkey as the bank aims for 20 percent of its revenues to come from overseas markets in five years, up from the 8 percent level which it hit after buying BNP Paribas' Egyptian business last year, CEO Pudner said.
Bahrain-based Ahli United Bank is scouting for acquisitions in its existing markets and in new ones as it tries to build a network across the Middle East, its chief executive said.
"Acquisitions come typically in feast and famine cycles - sometimes you get inundated with opportunities, sometimes the market goes dry - but we are known as an acquirer so we tend to attract approaches and we are proactive in soliciting interest from potential parties," Adel El-Labban told the summit.
The bank, with operations in six Middle East and North African states as well as the United Kingdom, wants a presence in three Gulf countries where it currently has no base - the United Arab Emirates, Saudi Arabia and Qatar - plus Turkey.
Large lenders such as Qatar National Bank (QNB) have bought banking assets in Egypt, Libya and Iraq in the past couple of years, eyeing a pan-Arab footprint.
For those not wanting to go the acquisition route, organic expansion is very much on the cards.
National Bank of Abu Dhabi, with a presence in 14 countries and assets of about $100 billion, plans to expand in cities from east China to west Africa as part of a push to beef up its presence in emerging markets, its newly appointed chief executive told reporters last week.
Assets in the Gulf banking sector, two-thirds of them held by the 20 biggest local banks, increased 11 percent in 2012 to $1.47 trillion, according to an estimate by QNB.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.
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