World Economy

Arab Banks Rush to Borrow

Arab Banks Rush to Borrow  Arab Banks Rush to Borrow

Persian Gulf Arab banks are rushing to raise money via the loan market by the end of the year in a flurry of activity attributed to a liquidity squeeze caused by lower oil prices, banking sources aware of the matter said.

At least nine institutions, including from Qatar, the UAE, Bahrain and Kuwait, are said to be speaking to other banks about raising cash for between one and three years, with processes at various stages, Reuters reported.

“It’s gone crazy,” said one of the sources, who heads loan syndications at one bank in the region. “It’s not surprising with all the pressure on liquidity but I can’t remember a market like this.”

Having enjoyed strong growth on the back of cheap liquidity from governments depositing oil revenues in their accounts, Persian Gulf Arab banks now have to cope with these same governments withdrawing cash to plug soaring budget deficits–either directly or via the issuance of local currency bonds and Islamic bonds.

 Knock-On Effect

The Arab banks have to seek alternative funding routes, such as the loan market, to fill the gap. And the rates at which they are borrowing are higher than the near-free deposits they received previously.

The knock-on effect will be more expensive loan rates for retail and corporate borrowers in the Persian Gulf Arab region, which are already showing signs of struggling with existing debts.

Qatari banks are most prominent in the current flurry of activity, with sources confirming Commercial Bank of Qatar and Doha Bank are marketing transactions and two Islamic banks–out of the four in the country–said to be speaking to institutions about deals.

CBQ is seeking $800 million over three years to refinance debt, including an existing $600 million loan that is due to mature in February, according to three sources with knowledge of the matter.

It will pay an all-in price–which includes the interest rate and arrangement fees–of 110 basis points over the London interbank offered rate (Libor), two of the sources said.

Doha Bank wants to raise $500 million for two years, paying all-in 95 basis points over Libor for a deal being arranged by Wells Fargo, according to three sources.

 Deposit Outflows

In the UAE, National Bank of Abu Dhabi, the country’s largest lender by assets, is looking for a one-year facility, according to two sources. One, a UAE-based banker, said it had approached 10 relationship banks about the deal, which will pay 35 bps over Libor.

NBAD has been hit hard by government deposit outflows. Its chief executive, Alex Thursby, said last month that 48 billion dirhams ($13 billion) of state cash had been withdrawn in the 12 months to Sept. 30.

Abu Dhabi’s Al Hilal Bank is seeking a two-year loan at an all-in rate of 150 bps over Libor and Dubai’s Noor Bank wants a three-year loan with an all-in rate of 115 bps over the benchmark.

Other banks in the market with deals include Kuwait’s Burgan Bank, which is marketing an up-to-$300 million two-year loan, and Bahrain’s Gulf International Bank, seeking as much as $400 million from a three-year loan paying an all-in between 125 and 135 bps over Libor, according to Thomson Reuters LPC.

Given the sheer scale of borrowing by Persian Gulf Arab banks, there is uncertainty whether all the deals can be completed. The loan syndications head said most deals were aggressively priced and with so many deals on offer, lenders could afford to be choosy.

“In anticipation of a Fed rate hike, Persian Gulf Arab banks are rushing to borrow in the loan market before rates move northwards,” Apostolos Bantis, credit analyst at Commerzbank, said of the rationale behind the current flurry.

He said declining liquidity into 2016 would push more banks to issue not only loans but also bonds.

Among the banks to have sold dollar-denominated bonds in November include NBAD, Commercial Bank of Dubai, International Bank of Qatar and National Bank of Oman.