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Gulf banks need mergers to compete

DUBAI: Gulf Arab banks will need to merge and boost their skills base if they want to grab a greater share of the region's cross-border project finance market from international competitors, a senior banker said on Wednesday.

Manfred Kuhlmann, Dresdner Bank's Middle East regional director, also told Reuters his own bank planned to build a project finance team in the region to meet demand.

"I think what would be necessary is for some of the banks to merge and combine their activities and their abilities to build up new business fields," he said in an interview in the United Arab Emirates' commercial hub.

"I feel some banks here, although not all, are still working on the basis of 20 years ago. I would see difficulties for them if they don't change," said Kuhlmann, who has spent much of his career in the Far East.

Oil-rich Gulf Arab states are increasingly looking to the private sector to finance infrastructure projects traditionally funded by the state. Only a handful of regional banks venture beyond their home countries, leaving international banks to dominate in cross-border financing.

Kuhlmann said many Gulf banks continued to deliver higher profits from traditional retail and trade finance business.

"They provide a service, but I wonder if they are not limiting themselves with a relatively small capital base," he said, adding that many banks seemed to lack the scale to invest in computer systems to improve their capabilities or to expand beyond their home territories.

However, he said Gulf Arab banks were often relatively small because their consumer market was limited. Even the biggest Gulf Arab state, Saudi Arabia, only has about 18 million people.

BUILDING UP PROJECT FINANCE TEAM

Kuhlmann said Dresdner in Dubai which oversees offices in Beirut, Cairo and Tehran aimed to move a project finance team to the region to meet the Middle East's "growth potential".

"We are considering seriously to have our first project finance expert (in Dubai) by the middle of this year. If things go as planned we hope to create a project finance team for the Middle East," he said.

Iran offered good growth prospects, he said. "Iran for us shows medium and longer term growth potential in terms of project finance and particularly trade finance," he said, although much would depend on economic liberalisation.

Dresdner was seeking to expand its customer base among regional institutions and retail customers for funds under its asset management operation, Kuhlmann added.

Euro-denominated products could find a growing market in Gulf Arab states where currencies are mainly linked to the US dollar, as are oil prices.

"We see a lot of growth potential for a stronger euro," he said. "We think that, with euro products, we could offer interesting products to these countries."-Reuters