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Gulf banks major acquirers in MENA.

Banks in the Gulf Cooperation Council (GCC) countries are becoming active buyers again of stakes in banks in the Middle East and North Africa (MENA) and even farther afield, Standard & Poor's said yesterday.

As acquirers in MENA, Gulf banks are taking the place of European banks that are shoring up their balance sheets in the aftermath of the financial and sovereign crises.

"Banks in the Gulf have capital to spare, and are literally capitalizing on their traditional strengths such as strong capital positions, healthy liquidity, and supportive shareholders to pursue acquisitions in MENA emerging-market countries, where opportunities for long-term growth exist," said Standard & Poor's credit analyst Timucin Engin.

Standard & Poor's Ratings Services has noted a sharp rebound in acquisitions by Gulf banks in 2012, especially in Turkey and Egypt, in a report published today, "Exit European Banks, Enter Gulf Banks as Major Acquirers in the Region's Emerging Markets".

Mergers and acquisitions in 2012 in MENA were the highest since 2008, and buyers favored the financial sector slightly more at 30.5 percent of transactions than telecommunications at 26.7 percent. And Egypt and Turkey attracted much of the activity. According to the report, 142 deals were announced or closed in Turkey for a total value of $ 10.1 billion, and in Egypt, transaction volume reached $ 9.8 billion from 38 deals.

Looking at the prices of the announced and realized deals, we observe that the price of a controlling stake in a financial institution is significantly lower than before the crisis, creating affordable access for long-term business operators.

"We look at the potential impact on the ratings of issuers on a case by case basis. Potential rating movements depend on a conflux of factors, such as how well capitalized the acquirers will be post-acquisition, how well they will manage the credit exposures arising from these expansions, and whether they will be able to reap potential benefits of diversification," said Engin.

Growth into higher economic risk countries could boost a bank's risk-adjusted capital requirements, lowering our assessment of its capital adequacy. However, Gulf banks generally have supportive shareholders and strong internal capital generation which might serve as a cushion.

Furthermore, these transactions are opportunities for diversification into markets with large unbanked populations, which can provide for longer-term growth. A negative factor is that, excluding a few ones, banks in the Gulf -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates -- usually lack lending and credit underwriting experience outside their region, which we view as a significant risk factor.

According to the S&P report, European banks will continue to sell noncore assets, especially those outside of their home markets, to rebuild their balance sheets in the aftermath of the financial and sovereign crises, and meet tighter regulatory requirements.

Before the crisis hit, major European banks acquired a large portfolio of financial institution stakes in key emerging markets to provide them with long-term growth opportunities.

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Publication:Arab News (Jeddah, Saudi Arabia)
Date:Feb 4, 2013
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