The Middle East Business Interview: In This Exclusive Interview for the Middle East Magazine, President and Chief Executive of the Bahrain-Based Albaraka Banking Group and Chairman of the Union of Arab Banks in Beirut, Adnan Ahmed Yousif, Talked to Pamela Ann Smith
Smith, Pamela Ann, The Middle East
AS THE GLOBAL financial crisis and economic slowdown spreads beyond the US, Europe and Japan, the Arab oil exporting countries in the Gulf are coming under increasing scrutiny despite their huge current account surpluses. Governments in Saudi Arabia, Kuwait, Bahrain, Qatar, the United Arab Emirates and Oman have stepped in to ensure stability in their financial markets and to support continued domestic growth. In this wide-ranging interview, Adnan Ahmed Yousif, President and Chief Executive of the Bahrain-based Albaraka Banking Group and Chairman of the Union of Arab Banks in Beirut, urges banks in the region to increase their capital, especially from long-term shareholders. He also responds to reports that the Gulf's sovereign wealth funds (SWFs) and private investors may focus more on their growing needs at home rather than seek investment opportunities abroad.
TME: Many Arab banks are in a good financial position despite the current global turmoil. DO you think they should invest more within the Middle East and North Africa, rather than in Europe, the US or Asia?
AAY: Given the current global economic turmoil, most Arab financial institutions would prefer to stay liquid for the time being, awaiting developments in the world markets. This may be the most prudent approach under the current circumstances. Capacity building in the Arab region will be a preferred option for sovereigns to help develop their long-term infrastructure. This would support future growth as the world recovers from the recession. However, opportunistic investors will also seek to diversify their investments geographically once conditions are conducive to doing so.
What form should their investments take? Would you recommend equities or bonds, for example?
Arab Investors will be driven more by the risk profile of an investment rather than by the form at present, given that risks have emanated in both of forms of investments. In the future, investors will look for low risk investments--investments that are strong in traditional fundamentals.
Do you expect a new wave of mergers among Arab or Gulf banks?
We could see some consolidation in Middle Eastern markets over the medium-term as asset values have dropped. Frugal capital allocation demands that banks look to other avenues for spurring growth. One of these is to consolidate either physically or strategically in business.
What role should Arab governments play in supporting their banking systems? Are reforms needed? Are the regulations sufficient?
The regulations in Arab countries have been traditionally conservative and basically sound. It is just that the contagion effect from outside the region has made it necessary for Arab governments to support their financial services industries. But this does not require the magnitude of support seen in western economies.
What about the region's central banks? Are they adequately equipped to ensure the stability of their financial sectors?
The region's central banks have been quite proactive in responding to the needs of the current crisis. They are well-equipped. Central banks in the Gulf Cooperation Council countries have so far been effective in imposing a cap on money market rates. Moreover, the conservative policies followed by the GCC countries' central banks have left their financial institutions in a strong position to deal with the financial crisis that occurred in Europe and the US. This has also allowed them to protect their economies against any negative effects.
Do you think that more regional integration among banks and financial institutions is needed? …