(MENAFN- Khaleej Times)Banks in the UAE and Lebanon are better-positioned to benefit from the opening up of the Iranian economy with Tehran lining up $100 billion worth of energy deals to kick-start its economy.
For Dubai in particular a rise in inward investments from Iranian nationals following the lifting of the sanctions could moderate the impact of the softening real estate market in the emirate ratings agency Moody's observed. "We anticipate increased longer-term business opportunities for UAE banks if the Iranian economy opens up particularly given the private sector nature of the country's economy and Dubai's strengths as a logistics hub" said Khalid Howladar senior credit officer at Moody's. Potentially Western Chinese and Indian banks also will likely be attracted to Iran's diversified economy and significant trade flows according to Moody's. However physical expansion into Iran would pose greater risks warns Moody's. The ratings agency noted that the still-fragile operating and geopolitical environment would expose foreign banks to the asset quality issues inherent to emerging economies undergoing fast transformation. "The UAE is also particularly well-positioned to serve as a regional base for an increased number of international companies that would seek to do more business in Iran given the quality of the local logistics infrastructure" analysts at Moody's said. The International Monetary Fund estimates that a lifting of sanctions could add a full one per cent to the UAE's gross domestic product growth over the 2016-18 period through increased non-oil exports. "Increased economic activity would generate lending opportunities for both Iranian and UAE banks. We anticipate that the sectors most likely to grow rapidly after the lifting of sanctions would be trade finance hospitality and tourism. These are areas where UAE banks have significant expertise as they account for about 20 per cent of these banks' loan books." The removal of sanctions would also allow more investment into the UAE's real-estate market - which forms another 16 per cent of bank lending in the UAE - and which would potentially benefit from increased Iranian interest. Iranian nationals accounted for only three per cent of cash buyers as of the first quarter of 2015 versus 12 per cent in 2010 before the sanctions. "With over 400000 Iranian expatriates in the UAE there would also be a substantive growth in SME related activity for the banks" Moody's noted. Middle East business intelligence service Meed said the lifting of sanctions on Iran is one of the most significant changes to the regional business landscape ever seen in the region and it offers huge opportunities for Iranian and international businesses. Meed said in its Opportunity Iran 2015 report that large-scale investment in oil gas and petrochemicals projects would be Iran's top priority once international economic sanctions are lifted. Iran has the fourth-biggest oil reserves and the largest gas reserves in the world but years of isolation from the global market has left its hydrocarbons sector in dire need of modernisation. Investment in Iranian projects is expected to surge once the removal of international sanctions opens the major Middle East economy for business said Meed analysts. According to Moody's increased trade and investment could boost growth in Iran's banking sector and support asset quality of domestic banks although such improvements would depend on the strengthening of banks' capital levels and the implementation of structural reforms. "We see significant upside potential for Iranian banks from increased economic activity if sanctions are lifted. This could include new regional business opportunities relating to trade finance letters of credit and new investments and infrastructure projects" said Constantinos Kypreos senior credit officer at Moody's. Moody's report also highlights that if and when sanctions are lifted more than half of the official reserves which are currently frozen - estimated by the Institute of International Finance to total $92 billion - may be used for example to recapitalise government-owned banks or be invested in building the country's infrastructure. "Recapitalisation is much needed to unlock the growth potential of the Iranian banking sector" said Kypreos. "The repatriation of frozen assets and potential interest from foreign investors and financial institutions would also allow domestic banks to strengthen their solvency levels" he added. -
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