Burgess COMMENTARY
I have been an observer of global economics for several decades. In the 1970s I observed that the creation of OPEC and the increase in the price of a barrel of crude oil from around $3.50 a barrel to about $13.00 a barrel was the biggest single economic event in all of history ... bigger than either World War I or World War II.

I expected the economic prowess of Europe and North America to decline rapidly ... but this did not happen as I expected. This gets explained by the amazing creativity of bankers in London and New York, as well as other financial markets in Europe and the Far East.

Much of what the bankers did in the 1970s and the 1980s had positive economic impact, but more recently the banks have merely built a paper economy that has little substance, and of course, this house of paper came apart in 2007-2008. My guess is that banks that have the backing of real economic activity will essentially take over from the banks built on the paper economy. This is what this story is about. Expect more of it.
Peter Burgess

Qatari bank expands reach in Middle East

IMAGE The Doha skyline: Qatar's national bank is seeking to expand beyond the country's borders ©Getty

Qatar National Bank, the state-backed lender of Qatar, is extending its Middle East reach through acquisitions as it takes advantage of the downsizing of European banks and of Doha's new-found political clout.

The lender, which is 50 per cent-owned by Qatar’s sovereign wealth fund, is in early talks to buy French bank Société Générale’s majority stake in its Cairo-based unit, according to a stock market filing on August 30. On the same day, the Qatari lender, now the biggest in the Middle East and north Africa with $91bn in assets, boosted its stake in Dubai-based Commercial Bank International.

The expansion comes as European banks seek to meet new capital requirements, forcing them to downsize in non-core markets such as the Middle East. Analysts say the strategy of the lender is in line with the broader strategy of Qatar, an increasingly assertive political presence in a fast-changing Arab world. Doha has both an incentive to help build economic confidence in newly elected regimes and the financial firepower to do so.

Qatar National Bank “is ready for a bigger type of expansion”, says Ryan Ayache an equity analyst at Deutsche Bank in Dubai. “In many ways this mirrors Qatar itself – flush with capital, deploying political and economic muscle in the region and beyond.”

The small but immensely wealthy emirate, which has openly backed the funding of the Syrian opposition and provided military support for the removal of Muammer Gaddafi in Libya, has already shown that it wants a financial stake in the post-revolution Middle East.

In April, Qatar National Bank paid an undisclosed sum for a 49 per cent stake in Libya’s Benghazi-based Bank of Commerce and Development. This year, QInvest, a unit of Qatar Islamic Bank, expressed interest in Egypt’s EFG-Hermes , the biggest publicly traded investment bank in the Arab world.

The proposed deal, in which QInvest will pay $2 50m for a 60 per cent stake in EFG-Hermes Qatar, will be discussed at an EFG shareholder meeting on September 16. But the deal has also been controversial, fending off a counterbid and it was suspended by the Egyptian financial regulator in July because of a lack of clarity on details including minority rights.

Egyptian interests aside, Qatar National Bank is already present in nearly every country in the Middle East and north Africa, including Sudan, Iraq, Tunisia and Lebanon. As Raj Madha, a Dubai-based independent bank analyst agrees, QNB’s regional aspirations are nothing new, but it had been restrained by economic and political turmoil across the region. Now the bank is seizing the moment.

“In Egypt particularly, much of the political risk seems to have abated, and that has created a sweet spot, with potentially willing sellers and interested buyers,” says Mr Madha. Société Générale announced to the Egyptian stock exchange on August 30 that it was in talks with the Qatari state-backed lender to sell its 77.2 per cent stake in Egypt-listed National Société Générale Bank. Shares of Egyptian banks rallied on the announcement.

With its Egyptian play, the Qatari lender, flush with liquidity, is taking advantage of French banks’ scaling back in the region as they recapitalise to meet domestic requirements of Basel III. Analysts say that the bank’s investments are in line with broader Qatari interests, which include helping to strengthen the Egyptian banking sector. Doha has pledged $2bn to the Cairo-based central bank, the first $500m tranche of which has been deposited.

“QNB is the bank for the Qatari government. Not only does it have a higher degree of government ownership than other Qatari banks, but the business and strategic relationship between QNB and the government continues to be strong,” says Mr Madha.

But Qatar National Bank’s investments have not been limited to post-revolution states. In Dubai, it increased its stake in Commercial Bank International to 39.9 per cent from 16.5 per cent, the Doha-based lender said on August 30.

Whether in Dubai or in Egypt, Qatar National Bank is taking an aggressive expansionary approach at a time when western lenders are stepping back from the region. Through combining the Gulf state’s political muster with its financial firepower QNB’s expanding reach is not likely to curtail.

“QNB has excess capital and would rather invest it in a very underpenetrated Middle East and north Africa retail banking market with probably the best long-term growth outlook, than in Qatar,” says David Mikhail, analyst at Beltone Financial in Cairo.

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