The Arab world needs a stronger regional banking champion, and Qatar appears to be putting forward a candidate – Qatar National Bank. It is on the lookout for acquisitions in the region, most recently Société Générale’s subsidiary in Egypt.
However, there is already a pan-Arab banking champion. It is also perhaps better named for the job – Arab Bank.
Arab Bank is an institution whose destiny has come up more in conversation after the resignation this summer of its chairman, Abdel Hamid Shoman. He was the last of the founding family to run the bank and his exit resulted in the other Shoman board members resigning too.
Set up in 1930, Arab Bank has a pool of loyal and experienced bankers across 15 Arab countries. However, in terms of its strategy now, few would disagree that it could build up its franchise more aggressively. Interstate jealousies still make acquisitions difficult, though this does not necessarily preclude faster organic growth using the banking licences Arab Bank already enjoys, from Morocco to Oman.
Arab Bank’s conservatism has grown partly out of its experience operating in a region of acute political volatility – in addition to the standard emerging market levels of economic and institutional instability. Nevertheless, Arab Bank could, for example, target at least a slightly higher return on equity, which has been less than 5% for the past couple of years.
New chairman Sabih Masri has quashed suggestions Lebanon’s Hariri family was negotiating the sale of its stake in Arab Bank to a Qatari investor. The Hariri family also denied it had entered negotiations to sell its shares to National Bank of Kuwait.
Yet something akin to a merger between Arab Bank and NBK or an institution from Qatar would not be a bad thing, if it meant Arab Bank, and by extension Arab banking, could better fulfil its potential. Shareholder backing from an oil-rich state such as Qatar or Kuwait could allow Arab Bank to focus more on growing rather than safeguarding its franchise.
A tie-up with NBK might also make sense when you take into account that Arab Bank is much bigger than NBK in Jordan and Palestine, while the reverse is true in Egypt, Kuwait and Qatar. NBK lacks a presence in the Arab world’s biggest economy, Saudi Arabia – Arab Bank is the only banking group from another Arab country to have a top-10 market share in Saudi. Ever since the first oil boom in the 1970s, banks have been set up to try to leverage state petrodollar wealth across the region, yet many have fallen short of expectations. Fusing petro-state backing with Arab Bank’s institutional maturity and regional breadth would be a much more powerful combination.
An Arab Bank with greater Qatari or Kuwaiti shareholder backing might, moreover, be better able to circumvent any regional political aversion to takeovers from Arab Gulf states compared with a purely Qatari or Kuwaiti bank, such as QNB or NBK. Arab Bank’s origins, after all, are in Palestine.