BNY Mellon expects Middle East business to grow despite headwinds

Exclusive: Rise in foreign investment flow into region continues amid IPO boom and efforts to diversify economies

Riyadh's Metro project. BNY Mellon says investors have confidence in the kingdom's economic fundamentals. Photo: Parsons

BNY Mellon, the US investment bank with more than $1.82 trillion of assets under management, expects its Middle East business to grow a “healthy single digit or more” over the next five years as the region's investment flows continue to increase and regional economies expand at a brisk pace despite global headwinds.

“It is a region that receives a significant amount of management’s attention and time at BNY Mellon — and management attention and time does translate into capital allocation and resource commitment to the region,” Hani Kablawi, chairman of BNY Mellon’s international operations, told The National.

“The Middle East remains important to us today, if not more important than it was last year.”

Regional economies, particularly the six-member economic bloc of the GCC, bounced back strongly from the pandemic-driven slowdown last year.

Economic momentum has picked up pace further this year despite spiralling inflation and mounting global macroeconomic headwinds, as regional sovereigns boost spending amid elevated oil prices.

BNY Mellon, which reported a 6 per cent increase in its third-quarter revenue to $4.28 billion, expects its Middle East business growth to be “above average”, driven mostly by the bank's “organic business”.

The bank is also open to inorganic growth opportunities, though that is not a focus at the moment, Mr Kablawi said.

Hani Kablawi says the organisation is 'open to inorganic growth opportunities', although these are not top priorities. Photo: BNY Mellon

“Sometimes one might see an opportunity to partner inorganically, I wouldn't rule those out, but I wouldn't point to [that] as the core of any of our strategies globally,” he said.

“We're not about to change our strategy for the region. Our strategy has worked really well for, you know, decades now.”

Saudi Arabia’s economy is expected to grow at its quickest pace in a decade and could be one of the world’s fastest-growing economies this year, the International Monetary Fund says.

The kingdom’s economy grew 12.2 per cent in the second quarter, exceeding initial estimates and registering the fastest expansion in more than a decade on the back of higher oil prices.

Saudi Arabia’s GDP is forecast to expand 7.6 per cent this year after 3.2 per cent growth in 2021, the IMF says, while Saudi investment bank Jadwa Investment estimates output this year at 8.7 per cent and the OECD projects growth of 9.9 per cent.

The UAE economy, the Arab world's second-largest, is set to expand by 5.4 per cent this year, the UAE Central Bank estimates.

Emirates NBD forecasts that the economy will expand by 7 per cent in 2022, setting up the country for its fastest annual expansion since 2011, when output grew by 6.9 per cent.

A steady stream of initial public offerings in the UAE and Saudi Arabia has also driven their capital markets, bucking the bear market trend in global stock markets.

Saudi Arabia’s Tadawul, the biggest Arab bourse, has risen about 7 per cent since the beginning of this year, while the benchmark indices in Abu Dhabi and Dubai are up almost 19 per cent and 5 per cent, respectively.

Foreign investment flows into Saudi Arabia and the UAE are on the rise, driven by economic diversification efforts that have opened up a number of investment avenues and boosted investor confidence in the growth fundamentals of both economies, Mr Kablawi said.

“There's a level of confidence within the region that I haven't seen in my … two or three decades of covering the region,” he said.

“There's confidence by both the leadership and the operators within the region of putting investments in programmes, projects, capital markets and infrastructure that supports inward investment into the region.”

Outward investment flows, however, are dominated by sovereign wealth funds that invest on behalf of their governments in strategic assets abroad, he added.

BNY Mellon's client base in the region includes sovereign wealth funds, regional central banks, commercial lenders, insurance companies and regional pension funds, as well as corporate issuers.

It offers trade finance, payment flows, custody operations, investment and asset management services, as well as helping regional issuers of debt and equity to gain access to global markets.

The investment bank is also exploring further growth avenues through its partnerships with regional financial institutions.

Last year, BNY Mellon signed a deal with SNB Capital, a unit of Saudi National Bank, the biggest lender in the kingdom by assets, to provide global securities services to institutional and large asset owners in Saudi Arabia.

In July, it tied up with Emirates NBD, Dubai’s largest lender, to further accelerate the growth of the UAE’s capital markets.

There are several such deals with regional champions already in the works “that are not public, and I cannot announce, and others are on the cards in the same way”, Mr Kablawi said.