Problems with liquidity have pushed construction industry stakeholders in the Middle East to pursue non-traditional forms of financing, said Shimmy Mathew, chief financial officer of KBW Investments.
Speaking with Construction Week, Mathew said that the lack of liquidity in local and international banking systems has been the biggest challenge that construction industry stakeholders have had to contend with in the past couple of years.
He elaborated: “Regionally, this has been a direct result of the price of oil, which is still the primary driver for economic growth in many countries across the Middle East.
“A slowdown in government spending means that bank deposits drop and lending tends to dry up, as lenders think more selectively about granting loans. Meanwhile, the cost of lending rises at the same time. This has been compounded by new international regulatory standards, such as Basel III, which have made some banks more reluctant to allocate long-term loans.”
Faced with the challenge of liquidity, the construction industry is said to have tried to adapt by approaching the issue of project finance with creativity.
Mathew explained: “Against this backdrop, construction industry stakeholders have generally had to become a little more creative when it comes to securing finance.
“As well as more traditional forms of financing, companies are now looking at a variety of options, including private equity players, specialist infrastructure funds, and capital markets – through bonds and/or sukuk – to make up the shortfall.”
He pointed out, however, that the extent of the impact of low liquidity varies from country to country, adding: “This has affected the banking sectors of some countries more than others; in the UAE, the Central Bank’s Credit Sentiment Survey for the second quarter of this year suggested that demand for credit appeared to have stabilized following a recovery registered in the previous quarter.”