The third part of this four part series on the HSBC Group looks at the bank’s presence and development in Middle East. The bank in this part of the world traces its origins to 1889 when the Imperial Bank of Persia was founded. The subsequent 117 years have seen the region undergo many, sometimes even dramatic changes. Yet, despite all the challenges HSBC has continued to develop and consolidate its presence in the region.

When HSBC acquired The British Bank of the Middle East in 1959 it gained entry to one of the most diverse and rapidly changing financial markets in the world. Its new subsidiary was among the largest and most experienced banking companies in the Middle East.

What became HSBC Bank Middle East Limited was established in London in September 1889. Originally known as the Imperial Bank of Persia the new company began life as banker to the imperial government of Persia. Earlier in 1889, Baron Julius de Reuter, a founder of the bank (and also the creator of Reuters) had obtained a 60-year banking concession from the Shah of Persia allowing the new bank to issue notes and to act as the state bank of Persia.

The bank opened for business in Tehran in late 1889 and between 1890 and 1893 opened a further seven branches across the country. Initially handicapped by the weakness in the international price of silver, which was Persia’ monetary standard, the bank began to grow increasingly important from 1896 until the First World War. Commercial bank deposits grew steadily and by the 1920s the bank had 26 branches.

In the 1920s and 1940s political change in Persia altered the bank’s outlook. In 1930, the issue of banknotes was transferred to the newly set up Persian national bank. In 1935, when the country’s name changed to Iran, the bank changed its name to the Imperial Bank of Iran. Then, in 1949, foreign banks were required to transfer 55 per cent of their deposits to the Iranian state bank. Two years later, foreign exchange permits were withdrawn, leaving the bank little option but to close the chief office in Teheran.

In the face of these changes the bank remodeled its strategy and expanded across the region. From the 1940s onwards the Imperial Bank pioneered banking in the Gulf States. This was vital to the development of the oil industry. The bank opened in Kuwait (1942), Bahrain (1944), Dubai (1946) and Muscat (1948). Other branches were also opened in Beirut (1946), Damascus (1947) and Amman (1949). This diversification led the bank to change its name to The British Bank of Iran and the Middle East. When the bank withdrew from Iran in 1952, the bank obtained a new Royal Charter under the shorter name of The British Bank of the Middle East.

The bank’s strategy of regional expansion continued throughout the 1950s until it became part of the HSBC Group in 1959. By this time it had operations in Saudi Arabia, Aden, Libya, Sharjah, Qatar, Tunisia, Morocco and Abu Dhabi. In 1959 the bank also returned to Iran but had to withdraw again when banks there were nationalised in 1979.

Throughout the 1960s, nationalisation of banks was a continuing factor in the Middle East. The process ended the bank’s presence in Syria, Iraq, Aden and Libya. Elsewhere though, especially in the oil rich Gulf States the bank reinforced its branch network and entered local banking alliances. In 1978, for example, HSBC transferred its business in Saudi Arabia to a new bank, The Saudi British Bank in which the Group took a 40 per cent stake. The group also invested in the Hongkong Egyptian Bank SAE, which was established in 1982.

In 1994, the head office of The British Bank of the Middle East was transferred to Jersey and, in 1999, the bank was renamed HSBC Bank Middle East. The investment in the Egyptian subsidiary was increased to 90 per cent in 2001, and the bank was renamed HSBC Bank Egypt SAE. The British Arab Commercial Bank Limited is another of HSBC’s associated companies, in which Midland Bank became a shareholder in 1972.

HSBC has pioneered services and products in the Middle East region, building on its international capability and global reach. An innovative range of products, available through HSBC Amanah Finance, allows the Group to provide viable Islamic alternatives to conventional finance. With this range of interests, the Group is one of the leading banking and financial services organisations in the Middle East.

Next week’s concluding article will look at the development of HSBC in the Americas. Parts I and II were published on 7 and 14 March.