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European banks seeks refuge in the Middle East troubled zones

Published: 01/01/2012 11:25:00 PM GMT
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As the sovereign debt crisis prevail more of the European banks seek refuge by selling Gulf loans to Arab banks which would help raise cash and financial losses for the European banks. The financial crisis had reached alarming heights in the financial year of 2011 for most of the European banks among the list of banks that seek refuge are France’s BNP Paribas SA and Societe Generale SA (GLE), Belgium- based Dexia SA (DEXB) and KBC Groep NV, and Italy’s Intesa Sanpaolo SpA and UniCredit SpA (UCG).

The loans to be offered are based on project finance and corporate which would be sufficient enough to solve the financial banking problems but out of the list of all the banks wanting to invest in Middle East have not yet accepted that they are about to do so but they have neither denied by saying that the information is highly private as the offers were made almost six months ago by the Middle Eastern region.

European banks have come up with the strategy to overcome their debts by offering the business of lending and selling to meet their regulators demands for higher capitals and the unstable situation in most parts of the Middle East seems just the right opportunity for all the banks to fulfill their needs as the existing social and political problems prevailing in the Muslim world would not leave a wide room for them to negotiate on conditions to get the money and would eventually make way for more secured finances in the coming years.

According to data compiled by Bloomberg banks across Europe it is stated on record that European banks have pledged to cut more than 950 billion euros ($1.2 trillion) of assets over the next two years which would fulfill their needs and would leave the financial pressures on the Middle East. It is also brought to notice by Ahmad Alanani who said that “There have been some large transactions in recent months,” the Dubai-based director for the Middle East at investment bank Exotix Ltd also revealed about the trades debt, he said in a phone interview “Cash rich banks from Qatar, Abu Dhabi and even some banks from Kuwait are natural buyers of these assets.”

BNP Paribas, Societe Generale, Unicredit and Intesa spokespersons declined to comment, while Dexia didn’t immediately respond to a request for comment. But the situation is also making it obvious for many banks that European banks would eventually do so “International project finance is one of the activities which are slowly being wound down at KBC,” Stef Leunens, a spokesman for KBC Groep in Brussels, mentioned in an email that the smart move of European banks is logical that we get expressions of interest for some of the run-off parts of this portfolio from time to time which clears off all the past bad history of finances.”

Qatar, Abu Dhabi and Kuwait are among the biggest oil producers which are spending billions of dollars to build homes, infrastructure and energy facilities to diversify their economies and to create more jobs for the local citizens. These countries have been spared the political unrest that has swept through the Middle East and toppled rulers in Tunisia, Egypt and Libya as their economies were set they have not been subjected to the chaotic situation.

There would be a bigger expectation of recovery of all the loans and it has been warned “A lot of these European banks are selling their premium assets to realize higher recoveries and to generate some liquidity for their own benefits as loans are always given on favorable conditions to the person who lends and this is easy to predict” Alanani said.

He added “We see large offerings to the Middle Eastern project finance portfolios as the cost of dollar funding has increased eventually making these long-term assets less attractive.”

European continental banks, especially the French lenders, are also seeking to reduce their U.S. dollar funding needs after access to the U.S. money-market dried up. Among the eight largest prime U.S. money markets had mutual funds that were slashed by their holdings of French bank debt by $76.8 billion in the year 2011 which was cut by 68 percent in November alone.

Borrowing costs for European banks have climbed as European governments struggled to contain the sovereign-debt crisis, with the three-month London interbank offered rate, or Libor, jumping 33 basis points from a low of 0.245 percent on June 15 to an annual high of 0.579 percent on Dec. 28. European banks have more than 1.7 trillion euros of non-core and non-performing assets on their balance sheets, according to Deloitte LLP.

Many European banks plan to invest in Middle East to get a multiplied outcome.