Qatar National Bank SAQ, which agreed to buy Societe Generale SA’s Egypt unit, is set to become the first Arab lender with assets exceeding $100 billion amid a drive to tap consumer lending in more populous markets.
Doha-based QNB said Dec. 13 it will pay $1.97 billion for 77 percent of National Societe Generale Bank SAE. The deal will give the lender, which overtook Saudi Arabia’s National Commercial Bank for the region’s top spot a year ago, a foothold in the Arab nation of more than 83 million. It will also boost the bank’s assets by 11 percent to about $107 billion, more than double their value at the end of 2009 and six times above the Middle East average, data compiled by Bloomberg show.
QNB, which raised $2 billion in bonds this year, said it also seeks to buy a majority stake in one of Turkey’s top 10 banks as part of a strategy to more than double the ratio of profit it derives from global operations by 2017. The plan mirrors the drive by Qatar, home to 1.8 million, to use a cash windfall from liquefied natural gas holdings to snap up assets worldwide, including London’s Harrods department store.
“QNB is going the right way, expanding into populous markets,” Rami Sidani, Dubai-based head of Middle East and North Africa investments at Schroder Investment Management Ltd, said by phone Dec. 18. “Qatar is a market driven by government lending, not retail-focused, given its small population. QNB has decided to expand into markets where it can benefit from real retail dynamics.”
With NSGB, Egypt’s second-biggest publicly traded lender, QNB will own about 160 branches across Egyptian cities, more than main rival Commercial International Bank Egypt SAE. A foray into Turkey would help the bank secure clout in the biggest economy in the Middle East and eastern Europe after Russia. The bank’s shares gained as much as 1.2 percent to 132.2 riyals, before closing at 131.4 riyals in Doha.
Moving into Egypt carries risks since nine out of every 10 adults doesn’t have a bank account, the Middle East’s lowest ratio apart from Yemen, according to the World Bank. Political turmoil has also forced Egypt to delay an International Monetary Fund loan agreement deemed as crucial to revive investments and pry economic growth from near a 19-year low.
QNB’s bonds haven’t rallied as much as regional peers this year, while its shares are down 4.9 percent, compared with a 3.8 percent drop for Qatar’s benchmark index. The yield on the 3.375 percent dollar-denominated notes due 2017 declined 113 basis points, or 1.13 percentage points, since their sale in February to 2.24 percent today, according to data compiled by Bloomberg. HSBC/Nasdaq Dubai’s GCC Conventional Financial Services U.S. Dollar Bond Index, by comparison, yielded 2.98 percent yesterday, down 271 basis points.
The lender’s effort to build scale abroad comes amid constraints to expanding retail lending in a home population that’s one-sixteenth the size of neighboring Saudi Arabia. Emirates NBD PJSC said today it would buy BNP Paribas SA’s Egyptian unit in a $500 million deal that will help the United Arab Emirates’ biggest bank wean itself off of reliance on a domestic market of 8.3 million.
Credit growth in Qatar is being spurred by government plans to invest $130 billion to build roads, sporting facilities and a metro and rail system before hosting the 2022 soccer World Cup. Public sector lending, which accounts for 42 percent of the total, surged as much as 99 percent in the year to May, the fastest pace in two years, before slowing to less than half that rate in October, according to central bank data.
The Qatari bank wants to secure 40 percent of profit from operations abroad in five years, up from 17 percent now, Chief Financial Officer Ramzi Marie said on a conference call Dec. 13.
QNB’s assistant general manager for group strategy, Mohamed Moabi, listed Turkey, Morocco and Saudi Arabia, where QNB has applied to open a branch, as target markets. “In the next three years, these are the countries where we will be paying close attention to available opportunities,” he said on the call.
The lender, whose market capitalization has more than doubled in the past three years, is acting prudently despite the fast pace of expansion, Schroder’s Sidani said. QNB bought NSGB shares at about 11 percent below the market price, showing investors it’s “not willing to overpay for any expansion,” Sidani said. It also lost out to OAO Sberbank in May in its bid to buy Istanbul-based Denizbank AS.
“We have seen how the bank backed down from Dexia because it didn’t meet the price level they were targeting and that was followed by an acquisition of a very strong franchise in Egypt,” Sidani said. “What we really like is the discipline.”
In Egypt, loan growth may triple next year to 15 percent as it recovers from last year’s popular uprising and secures a $4.8 billion IMF loan, according to Deutsche Bank AG estimates in October, before a spike in unrest over the past month. NSGB’s 2013 profit may increase 9 percent, according to the average estimate of seven analysts on Bloomberg.
QNB’s regional push forms “part of Qatar’s foreign policy and its soft power expansion,” Emad Mostaque, London-based investment strategist at Noah Capital Markets, said by phone Dec. 17. The Qatar Investment Authority, a sovereign wealth fund, owns 50 percent of QNB, and the bank’s chairman is the nation’s Finance Minister Yousef Kamal.
Qatar, the world’s richest country on a per-capita income basis, extended a $2 billion aid package to Egypt’s Islamist government to help stem the decline in foreign-currency reserves. QInvest LLC, a unit of Qatar Islamic Bank, is also set to gain control of 60 percent of a joint investment bank with Cairo-based EFG-Hermes Holding SAE in a deal announced this year.
“Qatar is looking to its future, benefiting from the Arab Spring by creating new markets,” Mostaque said.