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Thu 27 Oct 2011 10:06 AM

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Middle East eyes funding gap as European banks retreat

Eurozone debt crisis may force MENA companies to curtail growth plans

Middle East eyes funding gap as European banks retreat
British Prime Minister David Cameron leaves a European Council meeting in Brussels, on October 26, 2011

Companies in the Middle East and North Africa, which rely
heavily on bank financing, will have to curtail growth plans as European
lenders retrench, unless they find replacement funding sources quickly, senior
bankers said on Wednesday.

The eurozone crisis is forcing European banks, which had
actively targeted the Gulf in particular after the global financial crisis, to
return to their home markets and protect their capital ratios.

About 50 percent of cross-border syndicated lending in the
Middle East and North Africa (MENA), in terms of dollar value, has come from
European institutions in recent years, Standard Chartered's global chief
executive for non-US operations said.

"What it means for a lot of corporates, who are in good
shape, is that they will need to curtail their ambitions," V. Shankar said
at an International Monetary Fund event in Dubai.

"No one bank can rush in and fill that 50 percent. Some
of that 50 percent will come from regional banks. Can some of it come from
local capital markets, probably yes. But it is a real challenge in terms of
refinancing risk in the region," Shankar said in a later interview.

In 2010, Middle Eastern companies raised $52.34bn in the
loan market, according to Thomson Reuters data.

Deutsche Bank MENA chairman Henry Azzam said regional firms
would need to look to Islamic bonds, export credit agency-backed facilities and
Asian capital markets to fill the gap.

A number of Gulf companies, including Abu Dhabi National
Energy Co (TAQA) have been setting up bond programmes to access Asian investors,
especially in Malaysia.

European banks, in particular French institutions, have lent
heavily into the Middle East in the last five years to escape the slowdown in
other markets but have recently been deleveraging their loan books to raise
dollar funding.

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