Companies in the Middle East and North Africa (MENA) region should be reaching out to local banks as a source of “high-touch” coverage and local expertise that can serve as an important complement to the broad capabilities of global providers.

In a new report released today, MENA Companies Require Diverse Roster of Bank Providers to Support Growth, Greenwich Associates reveals the results of a study in which it conducted interviews with 311 corporates and 12 financial institutions in the MENA region about their corporate financing treasury needs and practices and their banking relationships.

Almost three-quarters of the companies that participated say they will require new capital to fund operations in the next six to 12 months, and more than 60% each say they will need additional funding for capital expenditures and acquisition finance.

However, new capital reserve requirements and other regulations recently implemented have forced banks to alter the way they allocate capital among businesses and regions. As a result, some MENA-based companies will find certain global banks less willing to extend credit.

“For these reasons, MENA companies should be complementing their rosters of global bank partners with close relationships locally as a source of credit and ‘high touch’ coverage,” says Greenwich Associates consultant Abhi Shroff. “These local banks are expanding, hiring and investing in their products, platforms and capabilities, both in local MENA markets and beyond.”

There is no doubt that global banks will remain core providers to MENA companies, which, like companies the world over, are expanding their international operations and increasing their need for non-MENA banking and financial products.

Although local MENA banks are steadily expanding their non-MENA products and services, large companies require the international reach and capabilities that only global banks can provide.

Trade Finance and Foreign Exchange
The top three bank products and services used by the large MENA companies in the study are domestic cash management, trade finance and foreign exchange. Greenwich Associates expects to see an increase in demand for all three of these products in coming years.

Trade finance has the potential for significant growth in the region. In Europe and the United States, companies use trade finance mainly as a tool to mitigate counterparty risk. Companies in the MENA region use trade finance much differently. For companies in this region, trade finance serves as an important source of funding and working capital.

G10 currencies make up more than half of annual foreign exchange trading volume among a subset of the companies in the study. “In executing these transactions, the companies employ high-touch trades ideally accompanied by intensive, high-quality service and value-added coverage,” says Greenwich Associates consultant Paul Tan. “Local banks are building and improving their capabilities—headcount among local banks for global markets specialists (sales people, analysts and traders) now outstrips local headcount of foreign banks by a significant margin.”