Emily Vogl, Frank Vogl
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Middle Eastern and North African Finance Leaders Conclude Major Conference Focus on Economic and Financial Challenges and on Banking Reform
12th Annual Meeting of Middle East & North African Bank Chief Executives
Cairo, Egypt, February 23, 2009 — Finance leaders highlighted both the critical global economic challenges and significant regional financial developments at the Institute of International Finance's 12th Annual Meeting of Middle East and North African bank chief executives hosted by Arab African International Bank.
About 100 heads of the region's banks, senior public sector officials and, leaders of global financial services firms with interests in the region, participated in the meeting. The leaders agreed that the global economy is now facing extraordinary strains that are effecting growth in almost every region of the world. However, participants noted that the Middle East and North Africa region remain relatively well positioned to withstand the adverse affects of the crises. They also stated that significant progress on financial institution-building is now taking place in much of the region, which is especially important given global market conditions.
Mr. Hassan Abdalla, CEO of Arab African International Bank, stated: "We are most appreciative of the important and timely speeches by officials that we heard at this gathering and I particularly want to thank His Excellency Youssef Boutros-Ghali, the Minister of Finance and the Chairman of the IMF's International Monetary and Financial Committee, and His Excellency Mahmoud Mohieldin, Minister of Investment for sharing their perspectives with the participants on the ongoing reforms in Egypt and on the economic outlook"
Mr. Abdalla added, "We have learned a great deal in these two days and the discussions have strengthened our determination to effectively address the challenges posed to our economies and financial institutions by the global economic developments. We have had a most productive exchange of views on the growth and modernization of the region's banking systems and recognized the vital importance of continuing with ongoing banking reforms to enable our financial institutions to continue to play a key role in the economic development of the MENA region and to strengthen their capacity to cope with the challenges of the current crisis"
The IIF, headquartered in Washington DC, USA, is the global association of financial institutions with more than 380 members from across the world. IIF Managing Director Charles Dallara said, "This has been an excellent conference. Once again we have seen how the financial institutions in this important region are determined to maintain their reform momentum to strengthen the fabric of the financial system. Our meeting has taken place at a time of exceptional strains in the global economic and financial system. The current challenges continue to provide new and important reform opportunities. We are seeing major efforts by governments and central banks at the global and regional levels to consult and seek internationally coordinated policy approaches and in this respect, the summit of the Group of 20 in London in early April will be particularly important. At the private sector level, we are seeing financial services firms across the world moving to address the weaknesses revealed in the current crisis and to strengthen risk management and implement, as appropriate, the principles and the recommendations contained in the final report of the IIF's Committee on Market Best Practices, which was published in 2008 and which represents an unprecedented effort by the global financial industry."
According to new forecasts by the Institute of International Finance, 2009 will see real world GDP decline by possibly more than 1.5 percent - the sharpest decline since the 1930s - after modest 2008 growth of about 1.8 percent. The leading industrial economies, which grew by just 0.7 percent in 2008, could see negative real growth this year of 2.7 percent. Many emerging market countries will also face significant declines in output. Overall, however, given growth in the Middle East and in Asia/Pacific, the IIF sees emerging market countries as a whole attaining real growth of about 1.9 percent, following 5.7 percent growth in 2008.
A major topic of discussion at the conference was the impact of the global crisis on the financial sector in the MENA region and especially on the more globally integrated GCC financial institutions. Both speakers who addressed the issue in presentations, Mr. Howard Handy, General Manager and Chief Economist, SAMBA Group, and Emmanuel Volland, Director of Rating Services at Standard and Poor's, highlighted the weakened environment in which banks are operating at present as a result of tightened liquidity, lower business volumes, and asset quality deterioration. However, some relief is being provided by the ample capacity of most governments and central banks to give support.
The meeting also discussed specific issues in bank reform, especially in this time of global financial strain. The importance of robust risk management systems was emphasized by George El-Hage, Executive Vice President and Chief Risk Officer of Arab Bank, while other speakers addressed the progress and challenges of Basel II implementation and the critical role of governance and transparency in financial institutions. Progress is being made on all these issues in the MENA region according to Riyad Al-Dugheither, Principal at Developed Solutions Consultancy, but that full implementation of Basel II and other structural reforms in the banking sector are taking place against difficult human resources and organizational challenges.
The future of finance in the region was also a central topic of discussion. Henry Azzam, CEO of Deutsche Bank in the Middle East, underlined the need to revisit the business models of certain types of financial institutions in the region in light of the current turmoil in the markets. Nabeel al-Mannae, CEO of Hayat Invest, an Islamic investment group in Kuwait, reviewed the development of Islamic finance in global markets noting an annual growth rate of 20 percent in recent years to an asset total of more than $700 billion at end 2007. Mr. Al-Mannae pointed out the challenges facing the industry especially in the current conditions, but also cited the underdevelopment of available instruments for managing liquidity, the lack of standardization, and the paucity of required skills as critical constraints to further rapid growth..
Commenting on the important economic issues facing Egypt today, Mr. George T. Abed, Special Advisor to the IIF Managing Director and Director for Africa and the Middle East, noted that the structural reforms undertaken in recent years have strengthened the resilience of the Egyptian economy and financial system to external shocks. He cautioned that growth would unavoidably slow in 2009 but that it should remain in comfortably in excess of the growth in the labor force. Moreover, he expected the current account to fall into a small deficit due to a decline in Suez Canal receipts, weaker tourism, and a reduction in export demand, but that financing should not be an issue. As the pressures arising from the global crisis recede, it is important to push ahead with fiscal reforms to help narrow the budget deficit and prevent the undue buildup of public debt.
Mr. Abed pointed out that the global crisis is having an adverse impact on the Middle East region due to the sharp decline in oil prices, slowing trade and remittance flows, and the higher cost of external financing. As a result, the overall outlook for North Africa and the Middle East has weakened and overall growth is expected to decline to 2.7 per cent in 2009. In the oil producing countries, the large current account and budget surpluses will virtually disappear but moderate growth will be achieved, supported by an increase in public spending as governments draw on accumulated resources to stimulate economic activity.
The 13th annual meeting of CEOs will take place at the end of February, 2010, in Amman, Jordan.
Emily Vogl, Frank Vogl