Saudi Arabia's banks still hold the largest deposit base among its GCC peers with a percentage contribution of around 38 percent of total GCC deposit base or around $283 billion as of September 2009, KIPCO Asset Management Company (KAMCO) said on Thursday in its latest analysis of “GCC Banks' Loan Portfolio & Deposit Base”. The banking sector in the UAE followed with a percentage contribution of 30 percent (deposit base of $221 billion), while Kuwaiti banking sector maintains its third largest position with a percentage contribution of total deposit base in the GCC region of 17 percent, equivalent to $124 billion in the period covered. With the intensification of the crisis and the liquidity shortage that prevailed over the market, total deposits continued to grow yet a drastically lower pace. The slowdown in the total deposits' growth stepped up during the first nine months of 2009, to reach $740 billion as of September 2009, growing by a marginal 2.1 percent compared to December 2008. The global downturn however slowed down the growth in loan portfolio and deposits in the GCC during the first 9 months of 2009 with a marginal increase for each of 2 percent. The region's banking sector had witnessed double digit growth in its loan portfolio and deposit base over the period 2004-2008. Loans grew at a 5-year compound annual growth rate (CAGR) of 32 percent to reach $609 billion at the end of 2008, while total deposits grew at a slower pace with a 5-year CAGR of 27 percent to reach $725 billion at the end of 2008. Amid intensification of the global financial meltdown and credit turmoil, all banks in the GCC region became more reluctant in extending additional credit to their customers, with tight credit policies being adopted triggered by the mounting risk of default by several investment and conglomerate groups and property developers, the report pointed out. “Such situation has led to a sharp slowdown in the growth of loan portfolio which stood at $622 billion as of Sept. 30, 2009, growing by a mere 2.1 percent during the first three-quarters of 2009. The loan-to-deposit ratio, set by central banks in the GCC, varies among countries and plays a vital role in the Lending policy of commercial and Islamic banks. Saudi banks enjoyed the lowest loan-to-deposit ratio which recorded 73 percent as of Sept. 30, 2009 compared to a ceiling of 80 percent set by the Saudi Arabian Monetary Authority (SAMA). This gives the banking sector in Saudi Arabia an edge to expand its credit portfolio, the report said. Dubai and Kuwait both enjoy a room to extend additional credit of $10 billion and $8 billion without breaching the limit for loan-to-deposit ratio set by the central banks in both countries which stand at 100 percent for Dubai and 85 percent for Kuwait. In Abu Dhabi, the loan-to-deposit ratio in the month covered has exceeded the mandated level set by the central bank of UAE which is currently at 100 percent. Loan-to-deposit ratio for the banking sector in Abu Dhabi continued its upward trend over the last 2 years to reach a maximum of 102 percent, up from 101 percent and 92 percent at the end of 2008 and 2007 respectively. The significant increase in the loan-to-deposit ratio has been fuelled by the growth in credit to finance real estate sector and the infrastructure projects along with the low growth rate in deposits over the same period. The surge in loan-to-deposit ratio during 2008 is mainly explained by the 32 percent increase in credit facilities versus a 26 percent increase in deposit base with banks. Fuelled by the economic boom in the country, Qatari Banks have also exceeded the limit set by the Central Bank of Qatar, which currently stands at 90 percent, by around 1100 basis points, the report said. The breakdown of loans among the 6 GCC countries showed that as of Sept. 30, 2009, the UAE banking sector has the biggest share with a 34 percent market share of loans, equivalent to $213 billion, while the banking sector in Saudi Arabia follows directly with a percentage contribution to total loans of 33 percent or around $207 billion. The Kuwaiti banking sector is the third largest sector by the size of its loan portfolio with a market share of 16 percent or around $98 billion. Loans extended by banks in Dubai witnessed the highest growth rate over the period 2004-2008 to grow at a 5-year CAGR of 65 percent; loans surged from $14 billion at the end of 2004 to $102 billion as of December 2008. However, no growth had been noticed in first 9 months of 2009 due to elevated default risk, flight of international capital along with the slump in property prices, devaluation of financial asset prices and the slump in the stock market.
