Gulf Financial Markets: New Realities Push For Further Transformation

Ebru Boysan asseses the region’s most recent developments in light of diversification efforts.

- Ebru Boysan

Developing financial markets has been the policy objective of countries in the GCC region for the last few decades.

Shaken by few global and local crises of their own, Gulf countries have overseen steady development of their markets at a more leisurely pace compared with the rest of the world thanks to the region’s bountiful natural resources.

However, the recent decline in oil prices is pushing these countries to evolve and deepen their markets, and, while significant progress has been made, challenges remain. Of special interest in the region is Saudi Arabia’s Vision 2030, which targets an accelerated series of capital market and economic reforms that are expected to have an impact on the entire region.

Here, we examine how developments are progressing across the region on a market-by-market basis.

Banking

The GCC is home to some highly capitalised banks by global standards, including First Abu Dhabi Bank – the post-merger of NBAD and FGB of the UAE. The sector has been growing; all countries have a high concentration of banking assets controlled by top banks, though in Bahrain and Saudi Arabia this concentration is less.

Banks are for the most part controlled by domestic investors due to long-term legacy restrictions on foreign holders and limited access to GCC cross-investments. While banks had favourable funding conditions when the economic environment was bullish and oil prices were high, the current reversal of such conditions poses a risk in lending.

During the financial crises of the last decade, banks in the region maintained resilience largely because of support from government and sovereign wealth funds. Saudi Arabia is one Gulf country taking concrete steps to attract foreign banks and institutions, with the aim of increasing foreign capital.

Equity capital markets