The top-20 listed banks in Saudi Arabia, the UAE, Qatar and three other Gulf countries continued to avoid the downturn afflicting the international lenders by posting strong first-half growth, according to Zawya.com data. The total assets of the top-20 listed banks in the Gulf Cooperation Council states rose 40 percent year-on-year to $649.2 billion at the end of June, as record crude oil prices continued to boost Middle East economies, a Zawya.com survey of first-half banking performance in the region shows. “The overall economic environment remains robust so banks have registered growth in asset size and profitability,” said Mihir Marfatia, an analyst at the Abu Dhabi-based investment bank The National Investor. Demand for real estate, infrastructure, consumer and corporate loans coupled with massive growth in liquidity led to a 43 percent increase in gross loans on banks' balance sheets, which reached a combined $402.3 billion by June 30, the data shows. The top-20 GCC banks saw net profit grow 22 percent to $8.68 billion in the first-half of 2008, compared with the corresponding period a year earlier. Net profit growth was slower than the rise in assets, but is still robust when compared with the hundreds of billions of dollars in losses and write-downs at major international banks. According to the Zawya.com data, QNB, which saw assets double to $41.9 billion year-on-year, was the fastest growing listed-lender in the region. The bank's net profit rose 54 percent to $510 million. Strong earnings growth has not necessarily translated to rising stock values for all Gulf banks, however. Banking indices in the UAE and Qatar are up 23 percent and 40 percent, respectively, since June 30 last year, the Saudi banking index is down 9 percent and the Kuwaiti measure has been flat. The decline of Saudi banks' shares comes amid a wider decline of stocks at the local bourse, with the Tadawul index dropping 26 percent since the beginning of the year. Zawya.com data shows that net profit growth was lower at Saudi banks than at lenders in the other GCC countries, with SABB performing best, recording a 24.2 percent net profit increase for the first half. To be sure, the underlying core growth of Saudi banks remains robust, however. Mohamed Abdul Samih, a senior financial analyst at Saudi Rana Investments Co, said growth in first-half net profit is still a welcome sign that Saudi banks are finding new revenue streams to balance losses from brokerage services at a time of market volatility. Banks still won't return to their pre-crash status “before two to three quarters,” Abdul Samih said. The Saudi Arabian Monetary Agency (SAMA), the kingdom's central bank, wants to restrict credit growth in order to manage inflation. Like the other GCC countries excluding Kuwait, the kingdom's currency is linked to the US dollar, which forces the central bank to mimic the Federal Reserve's interest rate policy. Increasing reserve requirements at commercial banks is one of the few monetary policy tools available to SAMA. The central bank has hiked the reserve requirement of demand deposits four times since November 2007, raising it to 13 percent from 7 percent, investment bank EFG-Hermes said in a recent report, which predicted that reserve requirement will rise to 15 percent in the coming months. As a result of higher demand deposits, it's more difficult for banks to write new loans. The efficacy of these measures in the long term is debatable but it seems to be working now. Loan growth at Saudi banks was slower than in the rest of the Gulf. Investors in Saudi banking stocks may also have some concerns about subprime related losses. EFG-Hermes said lenders have reported some investment losses in the first-half that could “accrue from their indirect exposure to US mortgage-related investments,” and predicted there “could be more negative surprises in 2008.” Net profit at Kuwait's biggest banks, National Bank of Kuwait and Kuwait Finance House increased 31.8 percent and 46.6 percent in the first half of this year, respectively, compared to the same period a year earlier, according to Zawya.com data. But loan growth was lower than in Qatar and the UAE as Kuwait's central bank enacts more stringent criteria on credit, and there are some concerns that rise in net profit was due to unsustainable gains. Naveed Ahmed, a financial analyst at Kuwait-based Global Investment House, said that banks there have booked investment income from the selling of stakes which was driving the bottom line, which is not expected to continue in the long term. Kuwaiti banks are in an expansionist mood and have been securing acquisitions in Turkey, Syria, and Egypt, which analysts and investors expect should be fruitful due to the demographic boom in the bigger countries, but it appears that the lackluster performance of Kuwaiti banking stocks will not be significantly altered anytime soon. “Most of the banks I am looking at are holds,” Ahmed said. A new report by Morgan Stanley has found that the 22 Islamic banks in the GCC have over $300b billion of Shariah-compliant assets and were poised for double digit growth sustainable over the next decade, reported Bahrain Tribune. The report also forecasts that Islamic assets in the GCC would grow to 18 percent of system assets by 2012 from its current 13 percent. In another development, however, study said earlier half of all UAE nationals consider their customer service experience neutral or negative; compares with the US market where only 24 percent of consumers are negative or neutral about customer service It said a midsized GCC bank with world-class customer service could increase profits anywhere from $50 million to $150 million a year. Despite record profits, the GCC's banking sector is losing hundreds of millions of dollars in potential revenue.
