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22/12/2015

Interview of Frederic Oudea in Gulf News: Opportunity in GCC despite slowdown

Tightening liquidity to improve pricing and margins for banks

Dubai: The GCC region along with the wider Middle East and Africa region continues to offer opportunities for balance sheet expansion, Frederic Oudea, Chief Executive of French banking giant Societe Generale, told Gulf News.
Oudea’s comment comes at a time when the GCC economies are facing a slowdown in growth and are in the process of trimming their public spending to cope with a decline in government revenues resulting from the persistent fall in oil prices.
While a few global banks operating in the region have announced the downsizing of their operations or closing down some lines of business, Societe Generale has been expanding and adding resources to the region since 2014.
"Our economists are forecasting a slowdown of GDP growth, but still the region has positive growth outlook. No one knows how long the cycle of low oil prices can last. But to start with the financial health of most of the GCC countries are very sound with strong reserves and very low public debt,” said Oudea.
Although low oil prices will adversely impact the GDP outlook, Oudea believes GCC countries are well prepared. “I think these countries can face the cycle of two to three years of low oil prices. Yes, it can mean that some projects can be delayed while at the same time most of the strategic projects will be pursued and these countries have the capacity to finance these projects. There might be a slowdown, yet we are looking at a growth rate of about 3 per cent,” he said.
Oudea said the retrenchment by some banks are not entirely related to this region in particular; rather they are part of wider problems faced by these banks elsewhere. Many of the changes happening in the region, he said, are part of these institutions’ efforts to refocus their business models and reduce costs.
“We have a strong presence in advisory and financing in energy and infrastructure, in investment solutions, in capital markets. We are not retrenching, rather we are selectively adding resources in a focused and balanced way,” he said.

Tightening liquidity
Oudea said the bank pays close attention to risks specific to the region, but sees clear opportunities in the GCC in the next two to three years as liquidity tightens. In the context of lower liquidity, apart from growing financing opportunities, pricing is also expected to be better.
“There have been a lot of pressures on margins because of excess liquidity. Going forward we will see some amount of balancing in the pricing. Some banks are already facing tighter liquidity following decline in deposits, limiting their lending capacity in a rising interest rate environment. This gives more room for players like us who have both the ability to lend and expertise. We have been part of a number of big ticket financing deals in the region in 2015 and going forward we expect to keep up that growth momentum,” said Oudea.
With the regional sovereigns, corporates and banks likely to tap global funding sources in the context of tightening domestic liquidity, the bank sees opportunities in global fund raising from the region.
“We are one of the biggest international DCM [debt capital market] houses in terms of Euro bond issues or US dollar bond issues. We know that these countries have good ratings and have the capacity to issue bonds in the international markets if they wish,” he said
A number of banks both big- and mid-sized ones have been raising funds in the international markets. The implementation of Basel III also is boosting issuance by regional banks to augment contingent capital instruments.

Source : Gulf News, Babu Das Augustine, Banking Editor December 20, 2015