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Middle East and North Africa financial systems A comparative approach Union des Banques Maghrébines Meeting Tunis – July 2008 Koceila Maames Fixed Income Markets Manager Head of North Africa + 33 1 41 89 12 60 [email protected] Middle East & North Africa financial systems Overview • Present situation • How resilient can it be? • The way forward and challenges ahead 2 MENA banking Systems, a worldwide perspective 3 • MENA banking systems play an overwhelming role in funding the economy • However, the largest MENA bank (NCB in Saudi Arabia) ranks 216th worldwide (total assets wise), while the aggregated Tier 1 capital of the 100 largest MENA b k represents no more than banks h 1.3 times that h off Bankk off America Structure of financial markets Total assets of commercial banks (Sources : IMF) (S (Sources : IMF ) USA 35% E Europe 52% Latin America 18% 21% 33% 35% 27% United States 10 204 United Kingdom 9 212 France 7 637 Emerging Asia 7 487 Japan 32% 6 415 Germany Asia i Euro Area 47% 38% 16% MENA 20% 35% 36% 0% Stock Markets 25% 42% 2% Italy 50% Debt Securities 2 295 Canada 1 917 Latin America 57% 75% 3 627 Spain 49% 7% 4 413 1 433 Middle East 100% Banks Assets 873 Africa USD bn 500 0 3 000 6 000 9 000 12 000 MENA banking systems exhibit major disparities 4 Total banks’ assets (USD bn) Total banks’ assets (% of GDP) (Source : IMF) (Sources : IMF) S.Arabia UAE Egypt Kuwait Lebanon Maroc Algérie Jordan Tunisie Libya Syria 277 210 137 108 74 70 56 28 26 26 21 0 50 USD bn 100 150 200 250 Lebanon Jordan UAE Egypt Maroc Kuwait Tunisie S.Arabia Syria Libya Algérie 300 Domestic credit (% of GDP) 0% 0% 102% 80% 71% 70% 69% 64% 63% 62% 53% 33% 11% 20% 40% 60% 80% 100% 120% 129% 127% 114% 106% 85% 79% 64% 51% 48% 100% 200% 300% 400% Private sector credit (% of GDP) (Sources : IMF) (Sources : IMF) Jordan Lebanon Maroc Tunisie Syria UAE Kuwait Egypt S.Arabia Algérie Libya 344% 200% Jordan Lebanon UAE Tunisie Kuwait Maroc Egypt S.Arabia Libya Syria Algérie 0% 97% 80% 64% 64% 62% 61% 55% 36% 16% 15% 13% 20% 40% 60% 80% 100% 120% MENA countries: haves and have-nots… 5 • MENA region includes l d 18 countries, which h h exhibit h b significant f revenue and d development disparities • The region possesses almost 70% of global oil reserves and 45% of Gas reserves but b the h wealth l h is i very unevenly l distributed di ib d GDP per capita Oil reserves per capita (Sources : National statistics and IMF) (Sources : BP Amoco and World Bank) Qatar UAE Kuwait Bahrain Israel Saudi Arabia Oman Libya Lebanon Algeria Iran Tunisia Jordan Morocco Egypt S i Syria Iraq Yemen 62,700 32,200 30,200 20,800 19,928 14,600 13,800 8,323 5,204 3 293 3,293 3,279 2,966 2,500 1,683 1,536 1 135 1,135 1,071 USD per head 762 0 25,000 50,000 75,000 Kuwait UAE Qatar Saudi Arabia Libya Iraq Oman Iran Bahrain Algeria Syria Yemen Tunisia Egypt Morocco* L b Lebanon* * Jordan* Israel* 10,570 6,917 3,993 1,990 1,964 1,714 409 162 139 70 53 27,800 24,850 44,130 Million barrel per head 0 15,000 30,000 45,000 ((*): ): Net oil importers … but all doing well 6 • With the past years’ sustained rise in crude prices, MENA hydrocarbon exporters have done even better than during the previous oil shocks p went through g rough g times (inflation, ( , higher g energy gy import p • MENA oil importers bill) but have proven resilient (tourism, remittances and privatisation receipts) Current account surpluses, now doing even better than China (Source: IMF and Bloomberg) 300 USD/b USD bn 250 200 80 (S (Sources : Offi Office des d Changes Ch and d National N ti l Statistics) St ti ti ) 30 70 25 60 20 50 150 Morocco’s FX revenue and reserves USD bn 15 40 100 30 50 20 0 10 -50 0 1990 1995 Gulf States 2000 China 2005 Oil price (rhs) 10 5 0 96 97 98 99 00 01 02 03 04 05 06 07 08 Tourism Exports Remittances FX reserves Tunisia’s special mention 7 • During the 80’s, volatile macroeconomic performance made Tunisia look like an unstable environment • Since the beginning of the ‘90s, improved macroeconomic management played for lower current account deficits and a sustained GDP growth performance The 80’s random walk The 90’s/00’s virtuous trajectory (Sources : IMF and Central Bank of Tunisia) (Sources : IMF and Central Bank of Tunisia) 4% Curren nt account ba alance (% off GDP) 4% 88 2% 2% 0% 0% 87 05 89 -2% -2% 94 02 -4% 91 82 90 -4% 95 81 -6% 83 -8% 93 -12% -2% 0% 2% 01 -8% -10% 84 4% 00 96 92 80 86 97 -6% 85 -10% 04 99 07 98 03 06 6% GDP Growth 8% 10% -12% -2% 0% 2% 4% 6% 8% 10% The uneven FX liberalisation as a crisis mitigator 8 • Two main kinds of FX regimes: (i) USD pegs or USD centric regimes for oil exporters and (ii) strictly managed floats (basket pegs) for the others (competitiveness issues). • Most MENA currencies are closely regulated, with commercially driven flows and mainly trading d on spot basis. b Some do d not even have h active inter-bank b k markets k MENA currencies at a glance (Sources : National Central Banks, IMF and Calyon MENA FX Trading desk) Markets Currency FX regime Product maturity Ticket limit Liquidity Calyon product range - USD10mn Highly illiquid Spot Up to 2 years USD40mn Sufficient FX Spot, FX Swaps, Deposits Algeria DZD Strictly managed float Bahrain BHD USD peg (0.376 BHD per USD) Egypt EGP USD-centric managed float Up to 6 months USD10mn Illiquid FX Spot, forwards and NDFs Jordan JOD USD peg (0.7 JOD per USD) Up to 1 year USD10mns Sufficient FX Spot and Forward Kuwait KWD Currency basket peg (May 07) Up to 3 years USD50mn Sufficient Spot, FX Swaps, Deposits, islamics, CRS Lebanon LBP USD peg within a narrow band - USD20mn Illiquid FX spot Libya LYD SDR peg (Officially) - - Morocco MAD Trade weighted basket peg Up to 2 years USD20mn Sufficient FX Spot, FX Swap, Deposits, CRS Oman OMR USD peg (0.384 OMR per USD) Up to 2 years USD25mn Sufficient FX Spot, FX Swaps, Deposits. Qatar QAR USD peg (3.64 QAR per USD) Up to 2 years USD40mn Sufficient FX Spot, FX Swaps, Deposits. Saudi Arabia SAR USD peg (3.75 SAR per USD) Up to 5 years Tunisia TND Managed float against a basket Up to 2 years USD15mn Sufficient FX Spot, FX swaps, deposits. UAE AED USD peg (3.6730 AED per USD) Up to 5 years USD250mn Sufficient FX Spot, FX swaps, Deposits, CRS. Yemen YER USD-centric USD centric managed float - USD5mn Highly illiquid FX spot Not an issue Very liquid Spot, FX-swaps, IRS, Deposits, Vanilla Options Highly illiquid FX spot Economic giants in the making 9 N Nominal i l GDP (2000/2007, (2000/2007 USD b bn)) St k M Stock Markets k t capitalisations it li ti (USD bn) b ) (Sources : National statistics) (Sources : World Bank, AMF) Saudi Arabia 382 241 Iran + 146% in average since i 2000 59 Qatar 38 Oman 16 Bahrain 0 2000 100 102 86 Egypt 103 Kuwait 133 Kuwait 126 Algeria 281 UAE 171 UAE Saudi Arabia 200 2007 300 64 Qatar Morocco 38 Jordan 32 9 Oman 400 + 567% in average since i 2000 2000 0 100 200 300 Comparative GDP per capita FX reserves per capita (Sources : IMF and National Statistics) (Sources : IMF) Saudi Arabia Bahrain Kuwait UAE Qatar USA Canada EMU Latin America Emerging Asia Average Africa 14,600 14 600 20,800 30,200 32,200 3,300 1,550 750 0 62,700 43,500 , 34,500 32,000 25,000 USD per capita 50,000 75,000 Libya UAE Qatar Kuwait Bahrain Algeria Oman Saudi Iran China Egypt 3,888 2,959 2,333 1 906 1,906 1,222 958 813 305 0 2000 4000 5,619 5 619 5,549 6000 2007 9,338 USD per capita 8000 10000 Developing safely and resisting exuberance • MENA region is well ahead of all emerging countries in terms of investment plans • Temptation to recycle windfall domestic liquidity, preventing external funding is huge • But such a strategy will prove risky for the regional banking systems (currency and maturity mismatches, division risk ratios, lack of know-how for project finance etc) Upcoming (or planned) investments in the GCC (Source: MEED and Calyon Research) 800 USD bn 700 80% of total 600 500 47% of total 400 79% of total 300 200 100 0 UAE Oil & Gas Saudi Arabia Petrochemicals Kuwait Power Qatar Water Oman Industry Bahrain Construction 10