Big Arab banks with money to spend are expanding across the Middle East in markets such as Egypt and Iraq, as they take advantage of a retreat from some areas by major international rivals, senior Arab bankers say.

Since 2011, some global banks have downsized some of their businesses in the region to cut costs, help shore up capital and focus on their core markets, while competition from local banks has intensified.

"It represents an opportunity for Arab banks with high capital adequacy who are interested in expanding and diversifying regionally," said Nemeh Sabbagh, chief executive of top Jordanian lender Arab Bank, speaking on the sidelines of an Arab banking meeting held in Amman at the weekend. Arab Bank established a regional network decades ago.

Some senior Arab bankers said they expect to see global banks moving increasingly to sell Middle East retail units or merge subsidiaries with other banks.

HSBC, Europe's biggest bank by stock market value, for instance merged its unit in Oman with a local Omani bank and sold its Jordan operation to another local bank and stopped wealth management services in Bahrain and Lebanon.

Elsewhere Barclays agreed this month to sell its United Arab Emirates retail operations to Abu Dhabi Islamic Bank , while French lenders BNP Paribas and Societe Generale have sold their Egyptian units to Gulf-based banks.

Oman Central Bank Governor Hamood Sangour Al Zadjali said the share of nine foreign banks operating in Oman had halved in the past decade to around 10 percent of total bank assets.

"We know that international banks are withdrawing from the market ... Their presence in the region may be too costly," said Muhammad Baasiri, vice governor of Banque Du Liban, Lebanon's central bank, also speaking on the sidelines of the meeting in Amman.

REGIONAL REACH

Meanwhile, top-tier Arab banks have amassed over $200 billion in combined capital and are benefiting from growing balance sheets and developed products. UAE and Qatari banks have led the way in making some sizeable acquisitions and increasing their stakes in other lenders.

Qatar National Bank (QNB) for instance extended its regional reach by acquiring stakes in various banks, including Libya's Bank of Commerce and Development, as well as increasing its shareholding in Iraq's Mansour Bank and in the Tunisian-Qatari Bank.

Jordan's Capital Bank has built a 70 percent stake in National Bank of Iraq and its Chairman Bassem al-Salem said locally based banks are getting better at competing with international lenders in diverse local markets.

"Local banks are becoming very mature and the costs for western banks are becoming too expensive to run the operation," Salem said.

In Egypt, where Gulf allies are shoring up the economy with billions of dollars of aid, Gulf banks are eyeing acquisitions, said Mohamed Kamal El-Din Barakat, who heads the Beirut-based Union of Arab Banks.

"If we look at the population, ATMs, at branches, Egypt is still way below what the country needs," said Barakat, also chairman of state-owned Banque Misr, the second-largest Egyptian commercial bank. "There is a lot of potential." – Reuters