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Banking industry

Slowing Economic Growth in Middle East to Impact Investment Banks

Strategic Insights

— 2 min read

A sharp decline in capital market activities, oil prices, and government spending across the Middle East region is expected to slow down economic growth, resulting in a significant decline in investment banking earnings. The investment banking divisions of many banks in the region are facing the prospect of restructuring and layoffs due to the low level of loan syndication deals and initial public offerings. The International Monetary Fund (IMF) has projected a tougher economic outlook for GCC countries, with a growth slowdown to 3.25 per cent this year and further to 2.75 per cent next year.

Key Takeaways:

  • Investment banking fees in the Middle East reached $480.5 million during the nine months of 2015, down 22 per cent recorded during the same period last year and the lowest first nine-month total since 2012.
  • The decline in oil prices is expected to translate into fiscal consolidation, lower government spending, and a contraction in non-oil private sector growth, resulting in an overall slowdown in capital market activities and demand for funding.
  • The IMF has projected GCC growth to slow to 3.25 per cent this year and further to 2.75 per cent next year from 3.25 per cent in 2014.
  • GCC's non-oil growth is projected at just below 4 per cent for both 2015 and 2016, a reduction of 1.75 per cent compared with 2014.
  • The drop in oil and gas prices contributed to a 58 per cent reduction in corporate and infrastructure bond and sukuk issuances over the 12 months ended Aug. 31, 2015, compared with the previous 12 months.
  • Fees from completed Mergers & Acquisitions (M&A) transactions totaled $177.6 million, a 1 per cent decline from the first nine months of 2014 and accounting for 37 per cent of the overall Middle Eastern investment banking fee pool.
  • The value of announced M&A transactions with any Middle Eastern involvement reached $33.7 billion during the first nine months of 2015, 23 per cent more than the value registered during the same period in 2014.

Statistics:

  • Investment banking fees in the Middle East reached $480.5 million during the nine months of 2015.
  • The decline in oil prices led to a 22 per cent decline in investment banking fees during the first nine months of 2015 compared to the same period last year.
  • The IMF has projected GCC growth to slow to 3.25 per cent this year and further to 2.75 per cent next year from 3.25 per cent in 2014.
  • GCC's non-oil growth is projected at just below 4 per cent for both 2015 and 2016, a reduction of 1.75 per cent compared with 2014.
  • The drop in oil and gas prices contributed to a 58 per cent reduction in corporate and infrastructure bond and sukuk issuances over the 12 months ended Aug. 31, 2015, compared with the previous 12 months.
  • Fees from completed M&A transactions totaled $177.6 million during the first nine months of 2015.
  • The value of announced M&A transactions with any Middle Eastern involvement reached $33.7 billion during the first nine months of 2015.

Sources:

  • Thomson Reuters
  • Freeman Consulting
  • International Monetary Fund (IMF)
  • Standard & Poor's (S&P)
  • Al Nisr Publishing LLC
  • SyndiGate Media Inc.

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