Swiss lead the GCC banking boom (page 1 of 3)

The current boom in Gulf banking - with full-year profits for 2003 up by 20 percent to $7.1 billion, and profits at Saudi banks up 30 percent in the first half of the year - obviously has an awful lot to do with the soaring price of oil.

The recent rise in consumer banking also goes a long way toward explaining the renaissance for Gulf-based financial institutions. The Gulf is home to a nearly unique concentration of multimillionaire and billionaire clients.

This has all been fueled by higher oil prices and output - and by strong reconstruction-related economic activity in neighboring countries - that have led to robust corporate earnings across a variety of sectors.

The positive trickledown effect is visible in construction, services and tourism, and an unparalleled increase in the capitalization of Arab stock markets.

Soaring stocks

As evidence of the economic boom in the region, equity markets and real-estate prices have jumped. The best performing stock market is Saudi Arabia's Tadawul, which soared 76 percent in 2003 and is up 29 percent so far in 2004. The ongoing mini-booms in several countries have bankers courting the region's super wealthy.

Economic expansion in the region is not only spurring private banking and wealth management services at local and regional banks, but also attracting foreign entities that want to cash in on the untapped wealth in the Arab world.

Foreign banks such as Julius Baer Holding, Credit Suisse Group, UBS AG, Citigroup, HSBC and others have established offices in the Arab world and are competing with local players to attract a chunk of this growing supply of investable money.

According to a recent Merrill Lynch-Cap Gemini report, the number of people in the Middle East with more than $1 million in investable assets has increased 2.4 percent in the past year, on par with Europe and ahead of Latin America.

There have long been wealthy people in the oil-rich Arab world. In the past, most of them banked at US institutions. Of Citigroup's 25,000 high net worth private banking clients globally, 10,000 are from the Middle East and Asia-Pacific region, says Mark Morgan, Citigroup's private bank managing director and onshore head for the Arab Gulf region.

Now, bankers say, more of the money being generated in the region is staying here, helping to boost local economies and create additional wealth, especially after the September 11th attacks changed the game and convinced many Arab investors to bring their money home.

"Some of the wealthy are insecure because of measures such as freezing of accounts, being questioned too closely or being put in the spotlight. It's affecting people who have nothing to do with these problems," says Kamel Mukharesh, chairman of Clariden Middle East, a private-banking subsidiary of Credit Suisse.

Today, foreign banks, and particularly the Swiss, still fare better than their Arab counterparts. Swiss banks are more flexible, less intrusive and maintain their long tradition of client secrecy, says one prominent Arab banker. "We cannot compete with the Swiss banks.
Wealth management is a very complex area. You need good research, access to stock markets and a good back office."

Most Arab banks don't have the research departments to compete with foreign banks, nor the breadth of investment products that foreign banks do. Even National Bank of Kuwait - often referred to as the Goldman Sachs of the Arab world and managing some $7 billion in assets - is small in comparison to its Swiss counterparts.