* European lenders selling MEast, N.Africa assets
* Gulf banks keen to expand; have financial resources
* Assets in countries such as Egypt, Turkey put on the block
By Dinesh Nair
DUBAI, June 20 As struggling European banks
scale back their worldwide operations, cash-rich Gulf lenders
see a chance to expand by snapping up the Middle East assets of
European rivals at attractive prices.
After years of building operations in the fast-growing
Middle East and North Africa region, European lenders are
shrinking back due to a crippling debt crisis at home and the
need to raise capital to meet regulatory requirements.
Gulf banks are keen to seize an opportunity as profitable
businesses from Turkey to Egypt have been put on the block by
European banks at a time when valuations are near multi-year
lows due to the volatility in financial markets.
"There is a lot of pressure on the international banks to
divest non-core assets and focus on their domestic operations
due to the euro zone crisis," said Jon Breach, Dubai-based chief
executive of BDO Corporate Finance Middle East.
"Undoubtedly, for regional banks (in the Gulf) that provides
a natural opportunity to consolidate and grow. You can see clear
logic for that."
BNP Paribas, France's biggest listed bank, is
planning to sell its retail banking operations in Egypt as it
seeks to shore up its capital base and exit non-core operations,
two banking sources told Reuters this month.
Piraeus Bank, Greece's fourth-biggest lender, is
planning to sell its Egyptian arm and as many as five Middle
Eastern institutions have bid for the $200 million stake,
sources told Reuters in April.
Piraeus, one of four stricken Greek banks that recently
received capital injections to help them overcome the effects of
the country's debt crisis, was not immediately available for
Standard Chartered Plc pulled out of the sale
process last year citing political instability in the North
African country, but Gulf banks remain keen to establish
"Most of the Gulf banks have their operations confined to
their respective states which have limited opportunities for
rapid growth at higher base," said Joice Mathew, head of
research at brokerage United Securities in Muscat.
"Branching out to familiar and neighbouring regions like
Egypt, Turkey is a sensible option given the quality of assets
being put up for sale by the European lenders. Deposit growth
has been on the rise and in the absence of enhanced lending
options, it's logical to put that low-cost excess liquidity on
First-quarter profits of around 20 Gulf banks covered by
Kuwait's Global Investment House rose 18 percent year-on-year,
thanks to strong balance sheet growth and lower provisioning,
according to the brokerage.
Those banks' deposit base grew 6.2 percent in the quarter,
Global said, but some banks are seeing much bigger deposit
growth, helped by oil-driven inflows.
National Bank of Abu Dhabi saw customer deposits
jump 24 percent in the first quarter to 187.7 billion dirhams
($51.1 billion). Q a tar National Bank (QNB) whose
profits rose 32 percent in 2011, saw a 21 percent increase in
customer deposits in the first quarter.
QNB, Qatar's largest lender, was the prime contender to buy
Belgian lender Dexia's Turkish arm DenizBank
but recently lost out on the deal, worth up to $3.9
billion, to Russia's Sberbank in a highly competitive
Kuwait's Burgan Bank, the commercial banking arm
of Kuwait's biggest investment firm, had more success, reaching
a deal in April to buy Greek lender EFG Eurobank's
Turkish arm for $355 million.
Burgan bought the stake at book value without any
significant premium, signalling pricing may favour the buyer in
"It is a buyer's market right now and the premise is that
emerging markets will continue to grow," Phil Gandler, regional
head of transaction advisory services at consultants Ernst &
Young in Riyadh, said.
"If you look at some of the assets being put on the block,
they are great assets generating a lot of value."
Countries such as Turkey, which targets 4 percent economic
growth this year despite the global slowdown, are seen as more
resilient to economic woes in neighbouring European countries
but gaining a banking license there is extremely difficult,
leaving acquisitions as the only way to establish a presence.
"We see a lot of interest for Turkish assets. Given all the
issues in Europe, it's the perfect proxy for Gulf banks seeking
growth opportunities," said a senior Dubai-based banker speaking
on condition of anonymity.
QNB, which has embarked on an aggressive expansion strategy
recently, may be eyeing BNP's Egyptian retail operations, one
banking source said, adding any talks are likely to be in the
initial stages. QNB was not available for comment.
In April, QNB agreed to increase its stake in Iraq's Mansour
Bank to 51 percent from 23 percent. It also acquired a 49
percent stake in Libya's Bank of Commerce and Development as
part of its expansion plan.
While Gulf lenders have been keen to expand their regional
operations, building scale has never been easy. Inter-regional
bank mergers don't happen a lot because major shareholders -
often powerful local families - are reluctant to cede control
and often want unrealistic valuations, analysts say.
Markets such as the United Arab Emirates are significantly
overbanked with 51 financial institutions in the UAE - 23 local
and 28 foreign lenders - in a country of five million people,
encouraging many banks to look beyond their domestic turf for
higher profit growth.
The tiny Gulf state of Qatar has 18 banks despite the
largest player having a more than 20 percent market share.
Foreign banks have beefed up their presence in the region and
taken away lucrative investment banking business, adding to the
challenge facing smaller local players.
"I think banks in the region, whether they are commercial or
investment banks, are due for consolidation and need to build
scale. However, you don't see that happening in the Gulf in any
big way," Gandler said.
Several bank mergers have been called off in the past,
including a union of Qatar's Al Khaliji Commercial Bank
and International Bank of Qatar (IBQ), which fell
through last year after the banks failed to agree terms.
Bahrain Islamic Bank and Al Salam Bank
ended merger talks in February because of disagreement over
Mergers that have taken place have tended to have been
forced by government.
The Dubai government ordered Emirates Bank and National Bank
of Dubai to join in 2007, and the combined entity, Emirates NBD
, is now absorbing Dubai Bank, a debt-laden Islamic
lender, at the behest of United Arab Emirates authorities.
(Editing by Susan Fenton)