Global Finance: Against a backdrop of rising debt, geopolitical and economic instability, how is the role of Islamic finance evolving to address emerging global challenges?

Yousef Khalawi: Despite its centuries-old heritage, Islamic finance is still a comparatively young industry. In its modern iteration, it is really just a half century old. Sukuk, for example, is less than 20 years old, making it relatively new compared with Western bonds.

The challenges you refer to are not merely domestic or regional—they are truly global in nature, and we see huge potential for the creativity of Islamic finance to address many of these. Take climate change, for example. Last year’s floods in Pakistan were not a result of local, or even regional actions; this is a global problem that can affect any part of the world.

Islamic finance has enormous capacity to develop new solutions to these sorts of challenges, and this is precisely the focus of the AlBaraka Forum, as it seeks to extend Sharia principles beyond the Muslim community.

GF: Where are the greatest growth opportunities?

Khalawi: Beyond the major global centers for Islamic finance of Malaysia and the GCC, Egypt, Pakistan, Indonesia, and Nigeria in particular represent huge growth opportunities for Islamic finance.

Financial inclusion is one way of unlocking that potential. In the case of Nigeria, Pakistan and Indonesia, these Muslim-majority countries each has a population far exceeding 200 million. If you consider the rate of financial inclusion in these countries, the potential for Islamic finance becomes evident.

Turkey also has great promise. Islamic finance penetration there is less than 10%, so raising that to just 20% is doubling the current penetration rates – underscoring the considerable potential for Islamic banking there.

GF: What role can Islamic finance play in advancing a more sustainable global economy?

Khalawi: The non-profit area of Islamic finance represents a huge range of opportunities for sustainability and ESG. If we were to transform the practice of zakat from an individual practice to an institutional practice, for instance, the sky is the limit. This would help institutions to focus on issues of inequality – just one of many of the 2030 Sustainable Development Goals that we are still some way off achieving, with just six years to go. Adapting the concepts of waqf and zakat at an institutional level could effect a great deal of change, especially in the world’s least developed countries.

The wider concepts and standards of Sharia-compliant investment by their nature lend themselves well to the sustainability agenda. Investments in alcohol, tobacco or military activities are prohibited anyway because these activities go against the well-being of individuals.

The fundamentals of Islamic finance have a lot to offer the whole investment industry. Even one of the largest funds in the world, Norway’s $1.6 trillion sovereign wealth fund, is moving closer to Islamic fundamentals. There is huge potential to explore this much more at a global level. So many CEOs in Islamic finance are focused only on the needs of Muslims seeking Sharia principles, but the potential is so much greater.

We need to consider these factors when communicating with Gen Z. We need to understand that they are looking for a digital economy, that ethical issues are important to them, and that they are guided more by values than by brands. A lot of research has been carried out on this topic, and it’s a great development that we need to take into account.

One of the Forum’s upcoming initiatives, scheduled for launch in 2025, is the first dedicated hub for communication strategy frameworks for Islamic finance. The new microsite will offer downloadable assets for anyone interested in exploring opportunities in Islamic finance.

Lebanon’s Bank Audi is the largest Odeabank shareholder, with a 76.4% stake. Other shareholders include the International Finance Corporation (IFC), FIG Investment Company and the European Bank for Reconstruction and Development, which have agreed to sell their interests. The financial details of the transaction have not been disclosed. The law firm Dechert is representing Bank Audi in the negotiations.

“As part of ADQ, Odeabank will have access to fresh capital, which will allow the company to unlock synergies with our wider portfolio,” Mansour AlMulla, deputy group CEO at ADQ, said in a prepared statement.

According to Bank Audi CEO Khalil El Debs, the deal will allow the bank to regroup and expand in select markets. “This transaction aligns well with Bank Audi Group’s present strategic focus on its home market as well as its presence in Europe,” he added.

In a September note, Fitch Ratings said it expected Odeabank to incur an operating loss this year and expected profitability to remain weak next year.

State-owned ADQ is nevertheless charged with expanding Abu Dhabi’s investment footprint across various sectors and markets. In 2022, it launched a $300 million fund with the Türkey Wealth Fund, which invests in companies developing emerging technologies or improving existing technologies in key sectors. But ADQ’s banking foray may not be without issues. In May, Fitch Ratings cautioned banks in the six-member Gulf Cooperation Council (GCC) about unchecked growth plans.

“International expansion provides higher diversification but can be a source of additional risks. In particular, foreign-exchange and interest-rate risks may be significant when entering a lower-rated jurisdiction with a more volatile macroeconomic backdrop.”

As a poll of economists showed earlier this month, Turkey’s economy is set to grow 3% this year and in 2025, lower than the government’s recently updated forecasts.

Florida-based GQG did not like the rather aggressive takeover proposal.

In April, BBVA offered Banco Sabadell €12.23 billion ($12.19 billion). About a month later, the bank’s board rejected the bid.

BBVA, undeterred, took its offer straight to Banco Sabadell’s shareholders, going full “hostile takeover” mode.

The Financial Times reported that asset manager GQG, founded in 2016 by billionaire Rajiv Jain, told BBVA’s management that the chase wasn’t worth it, and that Banco Sabadell would water down BBVA’s focus on emerging markets.

By July, GQG had exited BBVA.

BBVA and Banco Sabadell’s back-and-forth has not sat well with the Spanish government. However, the European Central Bank gave the transaction a thumbs-up in September.

The acquisition still requires approval from La Comisión Nacional del Mercado de Valores (CNMV), Spain’s stock market regulator. The Comisión Nacional de los Mercados y la Competencia (CNMC), Spain’s regulatory body responsible for ensuring fair competition, must also authorize the transaction with a detailed review.

The process will likely be resolved in the first quarter of 2025.

Under Spanish law, the government cannot block a bid. However, it holds the final say on whether a merger proceeds, contingent on the CNMC and CNMV’s approvals.

GQG, BBVA and Sabadell did not respond to requests for comment.

BBVA has been involved in several significant deals over the years, often to expand its presence in international markets. In 2020, BBVA sold its US banking unit to PNC Financial Services Group for $11.6 billion—one of the largest bank deals in the US. The sale was part of BBVA’s strategy to free up capital and refocus on its core markets, especially Spain, Mexico and Turkey. By 2021, the firm made good on that promise when it launched a bid to buy out the remaining shares of Garanti Bank to fully consolidate one of Turkey’s largest banks into its operations.

The post-pandemic inflation that tormented consumers and politicians in many economies was an enormous gift to banks. Rapid rate hikes by the US Federal Reserve (the Fed), European Central Bank (ECB), and other authorities enabled banks to raise their own interest rates faster than their deposit rates, leading to an avalanche of net interest income and record profits.

Now the party is winding down as inflation recedes and central banks ease up, but not too fast. The Fed’s key interest rate is now at 5%, compared to 0.25% in early 2022. The ECB’s rate is now at 3.4%, after having reached 4.5% in September 2023 and stayed there until a series of cuts began in June of this year. “The general mood is cautiously optimistic,” says Jens Baumgarten, Frankfurt-based global head of financial services at consultancy Simon-Kucher & Partners. “We’re not going back to the horror scenario when bankers were asked to make bread without flour.”

Rumors of recession have meanwhile proved exaggerated across major economies, leaving banks’ asset quality in good shape. “The important question is why interest rates are dropping, and right now they are dropping because the economy has proved resilient,” remarks Sandeep Vishnu, a San Francisco–based partner at consultant Capco.

One conspicuous vulnerability for US and European banks is the area of commercial real estate loans, which seems to be easing—or at least not deteriorating. “It looks like some light is showing at the end of the commercial real estate tunnel,” says Johann Scholtz, who follows European banks for market analyst Morningstar. “Offers to buy assets are falling into line. The market is rightsizing.”

Fears of a crisis in midsize US banks exploded in March 2023 with the sudden collapse of Silicon Valley Bank (SVB) and two others. That seems a distant memory now. The Fed deftly managed acquisitions by stronger partners, and competitors have quietly hedged the bond portfolio mismatches that started the trouble at SVB. “There were factors very specific to these institutions,” says Christopher Wolfe, head of North American banks at Fitch Ratings. “Other banks learned some lessons and are in better position to manage the downward rate trajectory.”

News from the rest of the world is also broadly positive. Big Japanese banks are growing their loan books at a 6% annual pace, the fastest in decades, as interest rates nudge above zero and animal spirits spread among their corporate customers, says Nana Otsuki, a senior fellow at Pictet Asset Management in Tokyo. “Corporates have become more aggressive, wanting to borrow more now rather than waiting,” she says.

Indian banks’ loan growth is roaring at double digits as state banks fund Prime Minister Narendra Modi’s infrastructure drive and private ones ride a consumer credit wave, according to Aditya Gupta, who manages the Simplify Tara India Opportunities ETF out of Mumbai. The bank scandals and busts of the 2010s are all but forgotten.

Even in China, banks are getting some respite from the intertwined crises of real estate and local government debt, as the central bank cuts interest rates and lowers reserve requirements, among other measures. “The central bank has become more active in injecting liquidity, and banks are seeing less immediate pressure on their liabilities,” says Logan Wright, who leads China markets research at New York–based Rhodium Group.

Not that bankers are ending 2024 worry free. The macroeconomic soft landing is still far from certain, particularly in the euro area, which has been sputtering at the edge of recession for the past year. The razor’s-edge US election could take the world’s biggest economy in unpredictable directions. China looks increasingly unreliable as an alternative global growth driver. Tensions in the Middle East oil bucket are unabating. “We are not out of the woods with respect to the prevailing operating environment,” notes Amit Vora, global head of credit and lending solutions at Mumbai-based global analytics company CRISIL, a subsidiary of S&P Global.

Localized risks lurk within robust national systems. Japanese regional banks are struggling even as the big banks are thriving, Otsuki says. Customer bases are literally shrinking in many provincial areas.

The main growth driver for Indian private sector banks is unsecured personal loans, often to novice borrowers with short credit histories, Gupta notes. The mortgage market, though also expanding, is too competitive for banks to make much margin. The Reserve Bank of India “began sounding the alarms” a year ago about unsecured lending, which was growing at more than 20% a year, says Gupta. Since then, “banks have started to sound a little cautious on asset-quality issues.”

US consumers have been releveraging, too, despite elevated borrowing costs, creating a potential trouble spot if the economy dips, Wolfe says. “Loss rates on credit cards and auto loans look unsustainably low,” he comments. “Card defaults are right at prepandemic levels but continuing to deteriorate.”

China has slapped some Band-Aids on its multifarious financial mess but lacks the transparency for a comprehensive cleanup, according to Wright. “Local governments don’t want the [central government] to know how much debt they have, and the [central government] wants to keep it ambiguous how much support it will give,” he says.

Global banking’s biggest challenge, though, remains losing market share to nonbank financial institutions (NBFIs) in two core competencies: lending and payments. Lending at the top-15 US banks increased by an anemic 0.9% year-on-year in the most recent measured quarter, according to S&P—a natural consequence of tighter money. Private credit AUM continued to surge by double digits to nearly $2.5 trillion, according to BNY Mellon data. “The growth of private credit is one of the big themes now,” CRISIL’s Vora says. “Banks have not been best placed to meet many borrowers’ needs.”

Incursions by nonbank payment systems are still more dramatic. “Adoption of payment apps—including Venmo, Apple Pay, Google Pay, or Cash App—now rivals adoption of credit cards,” a core business for banks, Undersecretary for Domestic Finance Nellie Liang recently told a symposium hosted by the Federal Reserve Bank of Chicago. Experience beyond the US is the same or worse, from the banks’ point of view, with services from Kenya’s M-PESA to China’s Alipay becoming the standard.

That leaves banks wondering how to grow—particularly incumbent brick-and-mortar banks, which are also under attack from newborn online-only rivals like Nubank in Latin America, Revolut in Europe, and Rakuten in Japan. “Banks’ next challenge will be avoiding a postgrowth scenario,” Morningstar’s Scholtz predicts.

With top-line expansion hard to come by, and no immediate crisis to combat, bankers are renewing their focus on technology to squeeze costs and enhance customer interaction, Vora says. “Clients are telling us now is the right time to reflect on how they are set up, to undertake transformation across the board,” he adds.

Generative artificial intelligence (GenAI), the tech that has the world abuzz, could turbocharge that effort, Capco’s Vishnu suggests. “A GenAI bot could produce the first draft of a credit narrative in 60 seconds,” he explains. “Add review by the loan officer, and the whole process is down to 30 minutes from half a day now.”

Simon-Kucher’s Baumgarten states the case more starkly: “Bankers need to be replaced, but not by humans.”

Better technology could also help banks individualize customer relationships—tailoring rates and product offerings to specific needs—and win back some of the turf grabbed by nonbank “originators,” Baumgarten adds. “Banks are sitting on a huge treasure chest of customer data,” he says. “A lot of them are using surprisingly outdated tools to work with it.”

Given the warp speed of GenAI development, though, today’s expensive, cutting-edge IT investment could be tomorrow’s surprisingly outdated one. “Banks are not in a hurry” to transform, Vora says. “They want to develop something bespoke, not grab a third-party solution.”

Another avenue to growth is joining forces with nonbank competitors, funneling banks’ cheaper, deposit-driven capital into lending structures that may be more dynamic. That’s not a new phenomenon. US bank lending to NBFIs has tripled over the past decade to $300 billion and now accounts for a quarter of the banks’ term loans, the New York Fed reports.

New tie-ups between big banks and private credit are making headlines, though. Citigroup announced in September that it will partner with private equity giant Apollo Global Management on a $25 billion fund. JPMorgan reportedly followed with its own $10 billion private credit vehicle.

Regulators are starting to express concern about these bets by deposit-insured banks. “A key observation is that nonbank financial intermediation involves significant liquidity and funding risk,” the New York Fed’s economists write in its Liberty Street Economics blog.

Fitch Ratings is watching that space, too. “Understanding what’s going on with banks’ increasing participation in private credit is important to us,” Fitch’s Wolfe says.

But the rush into private credit has not stopped yet.

Strong balance sheets and constrained organic growth will also push banks toward growing by merger and acquisition, where politics allow it. Major banking deals have gone quiet in the US since a flurry of post-SVB acquisitions. But the enormous herd of smaller institutions continues to consolidate, down by 138 last year to 4,577 (including credit unions).

Japanese banks are keen to deploy capital into faster-growing Asian economies. Notable recent deals include Mitsubishi UFJ Financial Group buying into India’s DMI Finance, while competitor Sumitomo Mitsui Financial Group took a stake in Vietnam Prosperity Bank. More may well be on the way, Otsuki says. “Return on equity in Japan remains extremely low,” she notes. “The banks will be looking for M&A opportunities in the region.”

The unlikely hub of banking consolidation, however, could be Europe. Despite the European Union’s unified trade in goods, banks have remained locked within national borders, unable to match the scale of US peers. “Most European players are tiny dwarves compared to the US top five,” Baumgarten observes.

Italy’s UniCredit is looking to shake this status quo with a hostile bid for Commerzbank, one of Germany’s biggest. It’s bought nearly 10% of the target’s stock and asked German regulators’ permission to hike that to 30%. Success in this deal could open the door for a raft of cross-border mergers, in theory.

The Berlin government is less than enthusiastic about the takeover. But ultimate authority lies with the ECB, whose head, Christine Lagarde, is a vocal consolidation advocate. Morningstar’s Scholtz thinks Germany will have to back down. “The probability of the deal going through has increased,” he says. “It will come down to price.”

The spotlight for banking regulation has meanwhile shifted to the US federal prosecutors who rocked the financial world in October, forcing Canada-based TD Bank to pay $3 billion to settle charges of laundering money through its US network. The plea agreement also capped TD’s US assets, constraining its growth in the much bigger market.

A month earlier, Washington regulators found “deficiencies” in money laundering controls at Wells Fargo, one of the US giants. Wells Fargo has been under an asset cap of its own, imposed last decade for opening accounts without customers’ knowledge.

More systemic drama surrounds Washington’s implementation of the global Basel III accords on bank safety. In July of last year, the Fed floated a plan that would increase the biggest US banks’ capital requirements by a whopping 19%, provoking a firestorm of protest from financiers and their political allies. In September, Vice Chair for Supervision Michael Barr revised that down to 9% and exempted midsize banks, between $100 billion and $250 billion in capital, from any increase.

Barr’s proposed compromise satisfied no one. Democratic Sen. Elizabeth Warren condemned it as a “Wall Street giveaway,” while Bank of America CEO Brian Moynihan waxed ironic. “Show them death and they’ll take despair,” he remarked.

The battle continues. “An overwhelming concern among US bankers is whether they will be faced with new regulatory burdens,” Capco’s Vishnu comments. “And fines have gotten so big, they can wipe out all sorts of efficiency gains.”

Big banks turned to governments for rescue during the 2008 global financial crisis and have been living with the consequences ever since. Stiffer postcrisis regulation opened broad swathes of the lending market to less-encumbered nonbank competitors. The lower-for-longer interest rates deployed for postcrisis recovery bit into bankers’ margins. The global profusion of mobile internet access meanwhile enabled a new universe of digital-native rivals and challenged banks themselves to overhaul business models.

Resurgent inflation since 2021 has returned rates to something like historical norms, giving bankers back the flour they need for the bread of profitable lending. The other challenges remain very much in force. Private credit funds and other nonbank entities continue to mushroom. Regulators are far from asleep. Banks, and the broader societies around them, continue searching for the optimal tradeoff between safety and economic dynamism. AI promises a technological challenge, which can also spell opportunity. Bankers have plenty of work to do.

The use of Large Language Models (LLMs) to increase efficiency, improve customer service, and enhance decision-making has been part of the conversation since the launch of ChatGPT by OpenAI in November 2022.  

While LLMs represent a significant advancement in the capabilities of AI, particularly in how machines understand and interact with human language, banks are taking a cautious response owing to concerns around regulatory compliance, data privacy and security, model accuracy and reliability, bias, and fairness.  

“Banks have been awash with data forever, but there is no prioritization, and tagging is incomplete or inconsistent,” states Andy Schmidt, vice president and global industry lead for Banking, CGI. “To be able to simply train a large language model to find the data, you need to have enough confidence in the data that it is usable enough.”  

“I think the important part that people need to sort out first is really getting the data sorted out. Setting out your data governance and making sure that the data is of a decent quality. Being able to de-dupe it and then figuring out where you need to enrich it,” he says.  

Standard Chartered is delivering AI-driven solutions and Margaret Harwood Jones, global head of Financing and Securities, says the bank has been working hard to solve data-management challenges. “You get so many instruction requests that come in in a very unstructured format, so we are using AI to turn those into structured data formats that we can then process efficiently.”  

At a Women in Tech Sibos event hosted by EY, panelists discussed how the only way to avoid biases in AI is to train LLMs to represent everyone from their inception, not just white males, and the only way to do this is to employ a more diverse range of staff.  

IBM believes that organizations need to proactively detect and mitigate risks; monitoring for fairness, bias, and drift. Updates to Granite Guardian 3.0, a widely used network monitoring tool in North America by Granite Telecommunications, allow developers to implement safety guardrails by checking user prompts and LLM responses. This includes checking for things like social bias, hate, toxicity, profanity, violence, and jailbreaking on 10 of the largest LLMs. 

Because of the potential risks and ethical implications, banks need to take responsible AI seriously, which includes taking a stringent approach to their data. 

The rise in e-commerce businesses, services, manufacturing and the gig economy has resulted in dramatic increases in both the volume and value of cross-border payments in recent years.

Long-term guaranteed fixed rates allow corporate treasuries to enhance financial stability, optimize liquidity, and align cash management practices with overall corporate strategy. It offers predictable returns, stable cash flow, interest rate protection and long-term liquidity planning.

“When FX risk is managed appropriately and efficiently, it can bring enormous value to companies that process large volumes of cross-border payments,” states Bhupen Velani, head of Transactional FX Trading in Global Markets at Bank of America. “As our clients’ business models have evolved, these volumes have increased, and so too has the appeal to lock in FX rates with longer tenors.”

BofA launched Guaranteed FX Rates beyond a 24-hour period eight years ago, supporting over 200 currency pairs. The one-year tenor is available in 37 currency pairs.

Daniel Stanton, head of Transactional FX in Global Payments Solutions, Bank of America, says for corporate treasurers, volatile FX markets exacerbate the challenge of cash flow forecasting. “Securing guaranteed FX rates of longer tenors can help them improve forecasting, which will lead to better informed decision-making.”

By forecasting cash inflows with greater accuracy, it allows for better budgeting and financial planning. With fixed returns, treasury departments can strategically manage cash reserves, deciding when to deploy excess cash or when to maintain liquidity for operational needs. Guaranteed rates also allow treasurers to align cash management strategies with long-term corporate financial goals, optimizing the use of excess cash for strategic investments.

Guaranteed FX Rates  can be obtained by BofA clients through the CashPro platform and via SWIFT with no additional technology changes required.

Long-term guaranteed fixed savings rates can be mutually beneficial, creating stability for both corporates and banks in a fluctuating economic environment. While they might not offer the same returns of some of the riskier FX products, the stability they provide makes them an attractive option.

Powered by BNY’s Trade Network Access Service, the agreement allows both banks to access each other’s Relationship Management Applications (RMAs).

“We were hearing from some of our clients, who have limited infrastructure, that they were faced with the expense of establishing an RMA for a certain bank to process a single letter of credit,” states Jennifer Barker, global head of Treasury Services and Depositary Receipts, BNY. “So we came up with the concept of a Trade Network Access Service so they don’t have to invest their own capital in it.”

“By leveraging BNY’s RMAs, we have access to over 4,000 bank branches,” explains Tsutomu Yamamoto, managing executive officer, head of Global Transaction Banking Unit at Mizuho Bank. “Setting up RMAs one-by-one by ourselves is costly and time consuming, so it makes much more sense for us to do this collaboration.”

In addition to cost savings, Ashutosh Kumar, co-head of Global Transaction Banking for Asia & Oceania, Mizuho says it also allows Mizuho to connect its clients to many more of their counterparties. “Traditionally most banks have RMA with X number of banks, but by bringing both our networks together we can connect to many more, and BNY has created a very good online portal, where you can very seamlessly search which banks are available.”

An RMA is just one component, and Joon Kim, global head of Trade Finance Product and Portfolio Management at BNY, says that once an RMA is in place to advise on a letter of credit, BNY will be working on ways to create more efficiencies, for what remains a manually intensive process.

GenAI, for example, will help banks to not just connect but to move letters of credit faster. For two old banks this is an exciting step towards the digitalization of trade.

Multinational and behemoth private banks increasingly view Latin America as a cornerstone of their growth strategy.

Recently, global giants including Citi, UBS, BBVA, and Santander have revamped their teams and opened new divisions in the region, aiming to leverage their leading global offerings for a larger piece of the wealth pie. Meanwhile, local players such as BTG Pactual and Bradesco have been opening their wallets to increase the breadth of their services in asset classes and geographical reach.

The ultimate prize is an evolving market projected to reach $1.3 trillion in assets by 2029, according to a recent report by Research and Markets. “Banks need to grow, and there’s little room for that in markets such as China or Europe right now,” explains William Trout, director of Securities and Investments at Datos Insights.

Getting to the pot of gold at the end of this particular rainbow may prove challenging, however, as the investment preferences of Latin America’s superwealthy grow more sophisticated.

“As individuals become wealthier, their needs become ever more global,” says Alfonso Castillo, global head of Santander Private Banking. “They tend to increase investments in hard currencies while seeking a more sophisticated, comprehensive value proposition.”

These evolving demands do not replace but rather add to the “complexity of wealth in Latin America,” argues Trout. “The interconnections between businesses and families and the way the relationships are structured make the landscape particularly complex, and good planning an imperative.”

The region also faces structural changes in both demographics and wealth composition, says Antonio Gonzales, head of Latin America at Citi Private Bank. “Women already control more than half of the financial decisions in the business ecosystem in several countries, contributing to a more diverse and profound decision-making process when it comes to preparing the next generation of wealth owners.”

Furthermore, as customer needs grow more complex and global, traditional family offices are progressively looking to the big banks for support in meeting parts of their function.

“Although a family office has many advantages, it doesn’t always have the scale and resources of a private bank,” Santander’s Castillo notes. Last year, Citi Bank’s proprietary research found that just 30% of investments from family offices in Latin America were directed toward their own region, whereas 80% of investments from their counterparts in the US and 54% from Europe, the Middle East, and Asia remained within their respective geographic boundaries.

Yet, despite banks’ growing ability to provide more tailored services, there are no signs that the family office model is being abandoned. “I don’t see banks gobbling up family offices anytime soon,” says Datos Insights’ Trout. In fact, the number of single-family offices in Latin America serving one family exclusively, grew by an astonishing 200% over the past decade, according to recent research by Capgemini.

To meet the plethora of evolving needs, banks have been pouring massive investments into the region.

Under Gonzalez’s leadership, Citi Private Bank recently laid out an ambitious plan to double its LatAm presence.

“Considering the estimated projections of wealth generation in the region,” he says, “we believe it is possible to double our business in Latin America in the medium- to long-term, focusing on UHNW [ultra high net worth] individuals and families with at least $25 million.”

Boosted by its takeover of Credit Suisse early last year, Swiss powerhouse UBS recently made its LatAm division an independent unit, “recognizing its significantly increased size and potential,” the bank said in a memo.

Similarly, Santander has added 90 new private bankers to its Latin America-focused Miami office and in Mexico. The Spanish financial services giant expects to reach €500 billion ($556 billion) in assets under management (AUM) by 2025 and sees Latin America accounting for the bulk of that growth.

Aiming to boost clients’ already growing demand for global investment products, Brazilian behemoth BTG Pactual has gone on an acquisition spree. Recently, the bank took over New York-headquartered M.Y. Safra Bank and completed the acquisition of FIS Privatbank in Luxembourg. BTG has also opened offices in Miami, Portugal, and Spain.

The bank’s focus lies firmly on the offshore business, where it expects to reach $30 billion in AUM by next year, according to Rogerio Pessoa, head of wealth management.

Bradesco Private, another local giant, has followed a similar path. Focusing on improving its offshore offering, the Brazilian bank has ramped up investments in Luxemburg and acquired BAC Bank in Miami, Florida, now rebranded Bradesco Bank.

Also placing offshore at the center of its growth strategy, BBVA Private in March opened a new advisory office in Miami, fully focused on Latin America. The Spanish powerhouse also disclosed plans to expand its private banking teams in Brazil and Chile, two countries where it lags behind the competition.

“Due to the higher degree of uncertainty of policy in Latin American economies, we find a strong preference for offshore assets,” says Citi’s Gonzales.

However, many clients still seek geographic protection without having to go offshore, notes Juliana Laham, chief investment officer at Bradesco Global Private Bank. “Offering global portfolios within local market investments has been a highly successful strategy,” she says. “In these cases, choosing between dollar-based strategies remains an interesting option.”

As Latin America grows into a key battleground for the ultrarich, the same cannot be said of the Caribbean. Due to tighter banking regulation in the US and in the region, several key players have found it challenging to keep their operations running.

The “de-risking” trend has led to the exodus of around 40% of corresponding banks from the region over the past 15 years, according to the Economist Intelligence Unit, reducing its access to global finance offerings.

“The island offshore market is getting increasingly fragmented globally as the US grows increasingly interested in closing financial loops,” Trout says. “That doesn’t bode well for the region, given that most of its AUM growth is not organic to the region as it is for LatAm wealth.”

One side effect of growing demand is that clients are resorting to more banks at the same time. A 2023 paper by the Capgemini Research Institute indicates that UHNWIs maintain relationships with seven wealth management firms on average, up from just three before the pandemic.

Against this backdrop, banks have been stepping up their game when it comes to customer retention.

“It’s not just a question of footprint and scale,” argues Alfonso Castillo, global head of Santander Private Banking. “The value proposition includes innovative global investment products and goes beyond private banking services such as banking for the clients’ companies, real estate advisory, and day-to-day banking.”

“Banks that don’t offer the necessary expertise around trust, philanthropy, and even around very specialized asset classes, such as alternatives, are under the threat of falling short,” Trout warns.

Against this backdrop, the industry is increasingly prioritizing services and comprehensive planning as central components of its offering, aiming to strengthen customer loyalty in the long run. 

However, Trout notes, figuring out the staffing model might pose the most significant challenge for banks looking to “support very specialized needs without being killed by the costs.”

The solution to that problem may be in technology, says Gonzalez: “Artificial intelligence can create models based on the client’s investment preferences and past behavior, then make recommendations and dynamically rebalance the portfolio based on new information or changing market conditions to correct any drifts from the core strategy. As a result, advisers can concentrate on the human-dependent aspects of client relationships: making big decisions, building trust, and understanding client needs and goals.”

Should the takeover go through, it would create one of the largest lenders worldwide, reshaping the banking sector in Europe.

After initially rejecting any speculation, Orcel declared that a possible tie-up would be “a test case for Europe,” and he was weighing a possible merger between Commerzbank and HypoVereinsbank, the German bank Unicredit acquired in 2005.

A Merrill Lynch mergers and acquisitions veteran, Orcel has a history—not always successful—in large buyouts. In 2007, he masterminded the acquisition of Dutch lender ABN Amro and its subsequent break-up by a consortium led by Royal Bank of Scotland.

During the same year, he advised Spanish giant Banco Santander on the sale of Italian lender Banca Antonveneta to Banca Monte dei Paschi di Siena (MPS), Italy’s oldest bank. In 2021, as he took the helm at Unicredit, Orcel himself attempted a takeover of state-owned MPS.

It never materialized. His focus is now turning abroad on Commerzbank.

“Given Mr. Orcel’s experience in European banks M&A and UniCredit’s presence in Germany with HVB, this strategic move is not surprising,” says Paola Biraschi, managing director and head of Southern European banks at CreditSights, a Fitch Solutions company. “However, the risks are meaningful, including the extraction of potential synergies. In this sense, I am a bit surprised that the bank did not strategically prioritize a domestic deal, where the synergy would potentially strengthen the bank’s domestic competitive position, which is challenged by the merger between Intesa Sanpaolo and UBI Banca.”

Overall, Biraschi concludes, “I would have expected domestic consolidation to be completed before seeing transformational cross-border deals in Europe.” For now, both the board of Commerzbank and the German government, which owns a 12% stake in the lender, say they are ready to fight; a top German official called Unicredit’s surprise bid “aggressive” and “unwise.” The markets are watching.

According to a September statement, the Central Bank of Egypt (CBE) sought the necessary approvals, including consent from Egypt’s Financial Regulatory Authority and the Egyptian Stock Exchange.

United Bank’s assets increased to 106 billion Egyptian pounds (EGP)—roughly $2.2 billion—at the end of June, up from EGP72 billion in 2021. Additionally, profits reached EGP1.74 billion at the end of 2023 from EGP1.15 billion in 2021, the CBE said. United Bank operates a network of 68 branches, maintains 225 ATMs and employs 1,800 staff. It also provides Islamic banking services to its customer base.

The CBE did not disclose the value of the intended IPO, and cautioned that the sale is subject to market conditions and relevant regulatory approvals. The IPO is an integral part of a new economic strategy, says Ahmed Negm, head of Market Research for MENA at broker XS.com. Negm said, “The sale is part of a broader asset sale program to address foreign currency shortages and boost the economy.”

Still, the Middle East is on a precipice amid fears that Israel’s incursion into Lebanon could morph into a wider regional conflict and affect investor confidence.

Egypt hopes to generate $1 billion from sales of state-owned companies this year, and $1.5 billion in 2025, Hala el Saeed, Egypt’s then minister of planning and economic development, said in April. This year’s forecast is lower than the earlier headline figure of $6.5 billion that Egypt’s finance minister indicated in February. The International Monetary Fund  also appears to have moderated its outlook for proceeds from privatization as a result of the war in Gaza. In March, the International Monetary Fund  increased a current loan agreement with Egypt by $5 billion to $8 billion. It previously negotiated a $3 billion, 46-month Extended Fund Facility with Egypt in 2022.