Correspondent Banking Opportunities for Big GCC Banks

Correspondent Banking Opportunities for Big GCC Banks

Regional GCC banks find opportunities in decline of global correspondent banking relationships

The withdrawal of large international banks from correspondent banking relationships is widely seen as a problem for emerging market banks, including those in the Middle East, because they now have more limited access to cross border financial services. But the withdrawal of the large international banks is also creating opportunities for the larger regional banks.

The ARAB BANKER’s Editor, Andrew Cunningham, spoke to James Daniell, a Dubai-based Managing Director of Alvarez & Marsal Middle East, about the work that his company is doing to help banks in the GCC pick up some of the cross border business that the large international banks are leaving behind.


ARAB BANKER: The withdrawal of large global banks from correspondent banking relationships (CBRs) in emerging markets has been well documented. From your perspective in Dubai, are you seeing any of the large GCC banks trying to fill the gap left by the global banks?

JAMES DANIELL: Yes, Gulf Corporation Council (GCC) banks that have a regional and, in some cases, global presence, have seen the opportunity offer correspondent banking services to smaller local banks and other regional banks with a different market presence. In doing so, these banks are also providing enhanced cross-border services and facilities to their corporate customers that are present in multiple markets and have cross-border needs.

As a result, we are seeing some regional banks re-modelling businesses such as Institutional Banking and Transaction Banking, recruiting executives from international banks, aligning their risk management and compliance functions to meet required standards, and investing in technology.

Building resources and investing in technology are the relatively easy parts. Success in building correspondent banking relationships depends on the image and reputation of the bank, which is essentially driven by the banks’ compliance standards and risk management frameworks. Herein lies the true challenge, and it is a large part of what we do in this field: working with regional and local banks to help them build their compliance standards in order to satisfy global regulators.


Are large regional banks able to replicate the services that were being offered by the large global banks, or are there gaps. The services and products are relatively standard and regional banks are able to replicate them quite well.

Certain regional banks do a particularly good job of helping respondent banks and developing close relationships with their financial institution (FI) clients. The large international banks are struggling to maintain those relationships, given pressure from their regulators.

Regional banks also seek to replicate the work and standards of foreign banks by hiring talented staff from international banks, investing in technology, and remaining aware of and current on the latest trends amongst international banks.

If regional banks have primary currency clearing capabilities, they can replicate the offerings of international banks well. However, those without direct clearing remain dependent on the strength of their relationships and their credibility with international correspondent banks. In such cases, the opportunities for new entrants are limited, given mounting pressure from regulators.


What does a regional bank need to do if it is to offer an attractive range of correspondent banking services to smaller local banks?

A regional bank needs six key components if it is to offer an attractive range of correspondent banking services to smaller local banks:

1. It needs the ability to clear multi-currency in a way that is efficient and customer friendly.

2. It needs a robust compliance framework.

3. It needs a strong IT backbone with constantly evolving IT management in order to adapt quickly to change.

4. It needs partnerships with correspondents rather than simply monitoring their compliance standards.

5. It needs competitive pricing for clearing.

6. It needs an established regional network to leverage its regional presence.


What are the biggest challenges that face a regional bank wanting to offer CBRs to local banks? Can regional banks really offer a wide range of CBRs or just a regional package?

A regional bank needs to focus on its local market and, given the growth in Islamic banking within the region, should be able to provide both conventional and Sharia-compliant clearing. It then needs a currency clearing system, credibility with regulators, an expedient service facilitated by technology and it has to be able to extract margins on a high cost base.

The whole correspondent banking model is being challenged, so there is no room to simply copy and paste an old model. If suppliers come in and innovate with customer-friendly technology, then there is room. Getting to scale quickly poses a challenge, there are low margins and high fixed costs.

Finding and retaining the right resources is also a key challenge, which is critical for on-going implementation of strong and globally accepted compliance and risk management standards.

A sustainable correspondent banking proposition hinges on the quality and standard of compliance and risk management provided by the bank offering correspondent banking services.


Can you give an example of banks that you have worked with and helped to develop a profitable CBR service?

We have worked with regional banks that have a US or European presence and multi-currency clearing facilities that are facing direct pressure from their regulators. In one example a large regional bank agreed to a Consent Order to address certain regulatory compliance weaknesses. We performed a detailed regulatory gap assessment and devised and implemented a remediation plan to address gaps in the bank’s processes, systems and controls so that it could continue its correspondent banking business.

We worked with a regional bank on operational improvements to its institutional and transaction banking capabilities. This included building the business case; assessing, selecting and implementing systems; managing project implementation and internal human capacity; and building and aligning internal policies and procedures.

We have also worked with smaller local banks in the Middle East and Central Asia whose existence relies on maintaining and growing their correspondent banking relationships. For one such client we performed a full end-to-end anti-money laundering (AML) and sanctions program including review and re-design, sanctions lookback review, systems validation, training development and implementation and on-going monitoring of implementation of the programme. As a result, the bank has maintained and added to its corresponding banking relationships and increased its foreign currency remittance volumes.


Alvarez & Marsal was founded in 1983 with the aim of providing radically different advice and hands-on support to organisations facing operational and financial hurdles. Key areas of focus include turnaround management, corporate restructuring and performance improvement for companies and stakeholders. Alvarez & Marsal is a global firm with professionals based in North America, Europe, the Middle East, Asia and Latin America.

In Dubai, the company has 27 senior executives and is led by Stephen Millington ( James Daniell’s email is Alvarez & Marsal is a Corporate Member of the Arab Bankers Association