Fast profit for Swift as Middle East leads way



Business in the Middle East for Swift, one of the world's leading providers of electronic payment systems, outperformed the rest of the globe by nearly half last year as greater numbers of banks and companies signed up to the service.

The pickup in activity in the region came despite the impact of 30 Iranian banks being barred from using its service and a dip in demand in some countries hit by the Arab Spring.

"The Middle East region is a vital market for Swift. It has outperformed our other regions and contributes significantly to the growth of our business globally," said Gottfried Leibbrandt, the chief executive of the Society for Worldwide Interbank Financial Telecommunication, to give Swift its full name. "We are excited with the growth potential this market can bring to Swift and are bringing more resources, services and opportunities to the local financial community."

Since setting up in the region in 2007, the share of Swift's Middle East operations in the global business has swelled from 3 to 4 per cent to 7 or 8 per cent today. Its global turnover stands at about €600 million (Dh2.97 billion).

But the performance of the Belgium-based business's traditional markets in Europe was hit by the banking crisis. As a result, that market grew by only 5 to 6 per cent.

In contrast, growth in the Middle East was 45 per cent higher than the global average. Expansion in the region was spread across Swift's message-based business that includes payments, securities, treasury and trade and the firm's new consulting operations.

Business in the securities markets rose by 14 per cent last year from the previous year, while international payment traffic rose by more than 10 per cent.

"The Middle East is one of the most dynamic and fast changing regions in the world today," said Sido Bestani, the company's head of Middle East and North Africa. "Swift has ambitious plans to accelerate local market growth by investing in people and resources and expanding its services offerings through the region hub."

Last March, in response to western sanctions against Iran, Swift took the unprecedented step of blocking 30 Iranian banks from using its service.

Mr Leibbrandt said the move had a "limited" impact on its performance as Iran represented a small part of its regional turnover.

"We are engaged in a dialogue with the regulators, saying at the end of the day we comply with the law where we operate but if you want us to facilitate our role of a global trade mechanism that will be impeded if we have to disconnect," said Mr Leibbrandt.

Regional operations were also affected by a slowdown in the use of Swift's services in Egypt, Libya and Bahrain, said Mr Bestani.

But strong performances in the UAE, Saudi Arabia, Kuwait and Lebanon made up for the dip in those markets.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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