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Dubai: Gulf banks, flush with capital from an oil-fuelled economic boom, are pushing international lenders out of the Middle East's project-fin-ance market, Merrill Lynch & Co's head of regional investment banking said.
"For the first time, borrowers in this market are not required to go to international banks," Jeffrey Culpepper said in Dubai. "We have here right now probably the lowest cost of capital in the world."
Banks and securities firms have disclosed more than $200 billion of losses from defaults on US subprime mortgages, which led to the collapse of more than 100 companies including Bear Stearns Cos. Gulf banks, in contrast, have amassed "unprecedented" levels of cash, according to Culpepper.
Gulf states plan to spend a combined $1.1 trillion to develop their economies, Qatar Finance Minister Yousuf Hussain Kamal said on March 16.
Economies in the Middle East will expand 9.2 per cent this year as oil revenue spurs spending on airports, power plants and business parks, Morgan Stanley has forecast. That's more than double the International Monetary Fund's 4.8 per cent global growth projection.
Dubai-based Emirates NBD was the only regional bank among the top 10 arrangers of Middle East loans in the fourth quarter of 2007, data show. This quarter it is joined in the ranking by Qatar National Bank, Masraf Al Rayan and Emirates Islamic Bank.
Cost of funding
Companies in the region sold a total of $23.7 billion of bonds last year, up from $14.6 billion in 2006, according to Moody's Investors Service.
Even though spreads are rising after the subprime mortgage collapse froze credit markets, returns on projects will still surpass the cost of funding, Declan Hegarty, HSBC Holdings Plc's managing director of debt capital for the Middle East, said in January.
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