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Dubai: Banking sector stocks continue to dominate the universe of listed companies in the Gulf countries. However this could change as a more diverse universe of listings emerges, according to international rating agency Moody's Investors Service.
The banking sector presently dominates Gulf Cooperation Council (GCC) exchanges in terms of value, in part due to fin-ancial institutions' role in recycling a considerable portion of these countries' oil wealth and liquidity.
While banks account for only 13 per cent of listed companies in the GCC in terms of numbers but about one-third of market capitalisation.
Going forward, Moody's said that the dominance of the sector in the regional stock markets could decline as a growing number of more diverse companies are obtaining stock market listings.
Other key sectors in the GCC are the hydrocarbon and infrastructure sectors - which are dominated by government shareholders, either directly or indirectly, with limited privatisation to date.
The trade and property sectors are mostly dominated by a large number of family-controlled small companies, which are reluctant to cede controlling power through listings.
"This situation combined with banks' rapid growth in size and burgeoning need for capital in the context of growing oil wealth and liquidity explains why banks account for around one-third of stock market capitalisation in the GCC, though a smaller proportion in terms of numbers of listed entities," said Anouar Hassoune, Moody's vice-president, senior credit.
Moody's expects a growing number of more diverse companies to be listed on GCC bourses, which would reduce banks' dominance in the market regional capitalisation. Key trends include the expressed intention of some privately-owned companies to list shares to further institutionalise their businesses and governments' renewed interest in privatisation for various reasons.
Volatility and regulation
However, this is dependent on certain market, regulatory and institutional developments taking place. Firstly, markets would need to be less volatile, and therefore more liquid and deeper. Secondly, the legal and regulatory environments need to be strengthened, although this is already under way with the emergence of independent capital market regulators. Finally, research and analysis must be further developed and strengthened.
Moody's Special Comment on GCC Banking Sector also said that the prospects for further bank consolidation in the region has increased.
"The paradox is that this [consolidation] came at a time when borders started to become less rigid, meaning that mergers and acquisitions paradoxically became a regional phenomenon rather than a pure domestic ballgame. Indeed, bank consolidation in the GCC did not go through the national stage," the report said, adding that there is growing appetite for M&A among regional banks.
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