Re-assessing the Arab-European Financial Relationship: Continuity in - PowerPoint PPT Presentation

Re-assessing the Arab-European Financial Relationship: Continuity in the Middle East, Change in Europe Andrew Cunningham Founder Darien Middle East www.darienmiddleeast.com French-Arab Banking Dialogue Forum darien middle east Paris, 19 October 2012 MIDDLE EAST, SHARIAH-COMPLIANT AND GLOBAL FINANCE

DISTRIBUTION OF REGIONAL GDP (Current $bn, 2010) SOURCE: WORLD BANK Total 1,732 Maghreb Total GCC Total 8 2 1 5 2 2 1 9 4 2 1 4 6 4 4 9 8 Algeria Saudi Arabia Morocco U.A.E. 6 2 9 6 1 5 3 7 Libya Kuwait 8 1 4 3 6 0 9 1 9 Tunisia Qatar Mauritania Oman 9 1 Bahrain 2 3 0 GCC Maghreb 5 Egypt Iraq Other countries* * Syria, Lebanon, Jordan, Yemen darien analytics Re-assessing the Arab-European Financial Relationship: Slide 1 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

DISTRIBUTION OF LOCAL COMMERCIAL BANK ASSETS ($bn, End 2010) SOURCE: CENTRAL BANK REPORTS Total 2,313 Maghreb Total GCC Total 2 8 4 2 3 7 2 4 1 2 2 3 9 0 4 1 Algeria Saudi Arabia 1 5 6 3 7 8 Morocco U.A.E. 5 3 0 1 1 Libya Kuwait 3 1 9 , 2 5 0 1 7 1 4 Tunisia Qatar Mauritania Oman Bahrain 1 1 5 4 3 8 GCC Maghreb 5 Egypt Iraq Other countries* * Syria, Lebanon, Jordan, Yemen darien analytics Re-assessing the Arab-European Financial Relationship: Slide 2 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

SOVEREIGN CREDIT RATINGS: MIDDLE EAST, EUROPE AND OTHERS* Middle East Eurozone 17 E.U. non-Eurozone Other Major Economies Aaa Austria, France, Germany, Finland, Denmark, Sweden, U.K. Canada, Switzerland, U.S. Luxembourg, Netherlands Aa1 Aa2 Kuwait, Qatar, U.A.E. Aa3 Saudi Arabia Belgium Australia, China, Japan, Korea A1 Oman Estonia Czech Republic A2 Slovakia Poland A3 Malta Baa1 Lithuania Mexico, Russia Baa2 Italy, Slovenia Bulgaria Brazil Baa3 Tunisia Spain Latvia, Romania India, Indonesia Ba1 Morocco Ireland Hungary Turkey Ba2 Jordan Ba3 Portugal B1 Lebanon B2 Egypt B3 Cyprus C Greece *RATINGS ON 10 OCTOBER 2012 (MOODY’S RATINGS) darien analytics Re-assessing the Arab-European Financial Relationship: Slide 3 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

ARAB BANKS WITH ASSETS >$50bn (End 2011) SOURCE: GLOBAL FINANCE MAGAZINE, BASED ON FITCH SOLUTIONS DATA 83.0 80.3 77.5 69.6 58.9 51.4 51.4 50.0 Abu Dhabi Samba National Al-Rajhi National Emirates National Qatar Commercial Financial Bank of Bank Bank of NBD Commerce National Bank Group Egypt Abu Dhabi Bank Bank U.A.E. SAUDI ARABIA EGYPT SAUDI ARABIA U.A.E. U.A.E. SAUDI ARABIA QATAR darien analytics Re-assessing the Arab-European Financial Relationship: Slide 4 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

MIDDLE EAST ENERGY INVESTMENT NEEDS ($bn) SOURCE: MENA ENERGY INVESTMENT OUTLOOK. ECONOMIC COMMENTARY OCTOBER 2012 BY ALI AISSAOUI. WWW.APIC/COM/RESEARCH APICORP estimates the Middle East 125 requires $740bn in capital investment for energy projects during 2013–2017. 107 “ The total annual volume of 71 debt of $58bn [which results 68 56 from APICORP’s estimates and assumptions] is much higher than the $44bn achieved in the record loan market of 2010.” Iraq Iran Algeria U.A.E. Saudi Arabia darien analytics Re-assessing the Arab-European Financial Relationship: Slide 5 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

European Financial Markets, the view from the Middle East n The Low growth environment n Sharp fall in creditworthiness of both sovereigns and banks (though key sovereigns such as France, Germany and U.K. remain AAA-rated) n Huge increase in regulatory burden for financial institutions n Regulatory uncertainty around key initiatives – Banking Union/changed supervisory structure for banks – Possible separation of client-based and proprietary trading – Domicile of clearing houses – Implementation of Basel 3 liquidity rules – Long-term position of The City of London/U.K. within European Union n Major European banks reducing medium/long term funding to Middle East darien analytics Re-assessing the Arab-European Financial Relationship: Slide 6 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

Huge increase in regulatory burden for fjnancial institutions “ [Heavy regulation] can boost confidence if it increases transparency in the market, but that assumes that regulators perform their roles efficiently. The recent global financial crisis happened under the eyes of regulators.” RISK MANAGER AT A LEADING MOROCCAN BANK “ The impact [of recent European financial market regulation] for individuals has been a genuine nightmare when opening an account with a European financial institution. The amount of paper work and documentation required is as big as a book!” GULF BASED ADVISOR TO AN ASIAN ASSET MANAGER darien analytics Re-assessing the Arab-European Financial Relationship: Slide 7 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

Regulatory Uncertainty n Bank restructuring: Liikanen Report, Volcker, Vickers n Differing views over implementation of Banking Union n Uncertainty over timescale of implementation of Banking Union n Uncertainty over domicile of clearing houses (Euro-clearing to take place only in Euro-zone countries?) darien analytics Re-assessing the Arab-European Financial Relationship: Slide 8 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

Effect of new liquidity rules “ European banks are less keen to do medium and long-term funding… the Americans have already pulled out….[but] people are still chasing yield and this part of the world still offers some attractive returns.” CHIEF EXECUTIVE OF GULF-BASED BROKERAGE HOUSE/ASSET MANAGER Little evidence of European banks reducing overseas interbank lines – the change is being seen in medium and long-term funding. darien analytics Re-assessing the Arab-European Financial Relationship: Slide 9 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com

Arab Financial Markets/European Financial Markets: The Future n Opportunities/Strengths lie in continuation of long-term factors – Cultural/demographic ties (Maghreb-France; Gulf-London) and physical proximity – Availability of technical financial expertise, especially in field of Islamic Finance – Less litigious environment than U.S. n Threats/Weaknesses lie in more recent initiatives rooted in re-regulation of Europe’s own financial markets: – Increased regulatory burden – Reduction in overseas operations overseas darien analytics Re-assessing the Arab-European Financial Relationship: Slide 10 French-Arab Banking Dialogue Forum Paris, 19 October 2012 F I N A N C I A L M A R K E T A N A L Y S I S Andrew Cunningham www.darienmiddleeast.com