Tuesday, June 17, 2008

The number of the East

By the end of this year, the UAE will be home to two institutions which will both be hoping to become globally significant.
Noor Islamic Bank launched in January with ambitions to become the world's largest Shariah compliant bank, while Abu Dhabi's Al Hilal Bank will launch with a slightly larger capital base.
Both of these financial institutions will be looking to achieve most of their growth outside the domestic market - with around 50 banks in operation, the UAE is not quite over-banked, but there is little room for the kind of growth these giants want.

Instead, they will be looking to expand in other regions with a large Muslim population, such as Malaysia, Indonesia, and parts of Europe and Africa.
The trend is not limited to pure-play Islamic banks: Abu Dhabi Commercial Bank and National Bank of Abu Dhabi, two of the UAE's largest lenders, have both expressed intentions to look East for future growth. ADCB has acquired a 25% stake in RHB Capital, Malaysia's fourth largest bank, which will provide it a foothold as it seeks to build its presence in the country.
Asia seems particularly receptive to Middle East banks, since it is experiencing a similar rate of growth to the Gulf and Islamic finance has a proven success rate there.
Of course, the ultimate prize is China, which is poised to overtake the US as the world's largest economy. The market is still far from open, but Western institutions have made attempts to enter - HSBC has a joint venture with Bank of Communications, and Bank of America recently raised its stake in China Construction Bank.
If banks in the Middle East have serious intentions of becoming more than just regional players, they need to have a strategy to harness growth in the Far East. The opportunities are too great to be ignored.On a personal note, this hack will also be heading East, but will continue to monitor developments in the Middle East banking market with interest.

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