MANAMA, 17 February 2004 — Private banking is growing fast in the Gulf with investment houses hoping to cash in on a new wave of prosperity in the region and a growing appetite for more sophisticated investments.
Most experts agree there is a growing formation of wealth in the Gulf, riding on higher oil prices in a region sitting on two thirds of the world’s proven oil reserves.
“Private banking in the region is driven by the significant growth of wealth, coupled with greater awareness and demand for a wider choice of investment and advisory services,” said Matthew Welch, head of HSBC Private Bank for the Lower Gulf.
“From a profitability perspective, more and more financial institutions are taking an active interest in the region. Definitely, the industry as a whole has been growing over the last decade,” he told Reuters. Although private banking has been around for decades in the Gulf, more local and foreign banks have been offering the service in recent years.
In Bahrain alone, the Gulf’s banking hub, about 16 financial institutions have launched private banking in the past decade and at least one, Taib Bank, is going wholly private.
Switzerland’s UBS Bank opened a subsidiary, Noriba Bank, in Bahrain in 2002 to offer Islamic and private banking. “We are doing very well. I think we opened at the right time,” said Noriba’s CEO, Mohamad Toufic Kanafani.
There is no reliable figure on total liquidity in the Gulf, or assets held by private banks which tend to be discreet, but experts put the total wealth in the region at about $800 billion-$900 billion, almost half of it owned by Saudis. Private banks have become a favored instrument for traditional wealthy families to transfer wealth to their descendants, bankers say, pointing to a rise in demand for trust-based services and advice on how to plan wealth transfers.
“A rich family patriarch, like a pearl merchant, who has made a lot of money looks for more sophisticated ways of transferring his riches to his children,” said Abdulrahman Mohammad Al-Baker, a director at the Bahrain Monetary Agency (BMA), which regulates financial institutions. In a sign of higher liquidity in the Gulf, stock markets across the region marked a stellar performance last year. The Saudi and Kuwait bourses, the two largest Arab markets, surged 76 and 101 percent respectively. The United Arab Emirates’ markets rose nearly 29 percent and Qatar’s bourse 69.8 percent in 2003, while Oman’s bourse gained 42 percent and Bahrain’s 28.8 percent. “Investors are leaving a higher proportion of their assets in the region itself rather than going offshore. They are increasingly looking closer to home. That’s why there is more potential for private banking in the region,” said HSBC’s Welch.
Many Gulf-based private banks have responded to this trend by hiring Arabic-speaking investment bankers to meet their clients and offer products in tune with Islamic teachings.
“Many rich people here don’t speak English. They like to be close to their money, deal with a bank in their time zone,” said Khalil Sharif, CEO of SG Asset Management (Bahrain), the fund management arm of French bank Societe Generale.
