Banks in the GCC region are poised to increase their lending in the fourth quarter of this year, after being hit by the 2008 global fiscal woes and regional default problems. Domestic credit in the six-nation Gulf Cooperation Council (GCC), which pumps nearly 17 percent of the world's oil supplies, has been dormant over the past two years but is starting to trickle up as the economic fog begins to dissipate and the banks amass sufficient reserves as a buffer for their financial exposures. With the exception of Saudi Arabia, though, credit growth is still way behind that in peak years of 2007 and 2008. Analysts said Gulf banks have sufficient liquidity to resume normal lending following a pick in deposits these institutions over the past few months. Official data showed deposits with the UAE's 51 banks swelled by nearly AED30 billion in the first seven months of 2010 to reach around AED998 billion at the end of July, one of their highest ever levels. But credit grew at a slower pace, rising by about AED10 billion to AED1,025 billion in the same period. In Saudi Arabia, which has the second largest Arab banking sector after the UAE, deposits plunged from SR942 billion at the end of 2009 to SR917 billion at the end of January 2010 but they rebounded to SR942 billion at the end of July this year, nearly SR17 billion over their level in July last year. Deposits with Oman's banks grew year-on-year by 11.6 per cent to RO9.85 billion at the end of July while in Qatar they gained about QR12 billion to peak at nearly QR246 billion at the end of May. Deposits with Bahrain's retail banks climbed to a record high of around BD10.13 billion at the end of June from BD9.52 billion at the end of 2009. Kuwait was an exception as deposits with its banks shrank to around KD27.9 billion at the end of July from KD28.1 billion at the end of 2009. Slow lending activity had its toll on the GCC banks' performance, with their net earnings dipping by around 8.5 per cent to nearly $14.39 billion in 2009 from about $15.74 billion in 2008, according to their balance sheets. Bahrain, the largest offshore banking centre in the Middle East, suffered from the biggest fall of around 35.2 per cent. In contrast, Kuwait's banks recorded one of their largest increases in net income of around 70 per cent. The combined net profits of UAE banks receded by around 19.18 percent while there was a drop of 15.2 percent in Oman, and 10.14 percent in Saudi Arabia. Banks in Qatar reported a slight fall of just 0.1 percent. As for the first half of 2010, the net income of 12 UAE banks listed on the bourse grew by nearly 2.2 percent to AED8.2 billion despite large losses suffered by the government-controlled Abu Dhabi Commercial Bank, one of the largest banks. Several banks reported lower earnings in the UAE but the decline was offset by a sharp rise in profits by key banks, including First Gulf Bank, the National Bank of Abu Dhabi, Union National Bank and Mashreq Bank. In Qatar, banks reported a 17 per cent growth in their net income to around QR3.04 billion in the first half of 2010. Their NPL provisions dipped to around QR32 million from QR92 million in the first quarter. In contrast, banks in Oman recorded a decline of about 5.9 per cent in their net profits to around RO121.3 million (Dh1.16 billion) in the first half of 2010 from nearly RO129 million in the first half of 2009. “The GCC banking sector has shown considerable resilience in the face of the global financial crisis. Nonetheless, lending activity has stalled sharply from the oil-fueled boom of 2004-2008 when bank credit nearly tripled thanks to an annual growth of around 29.5 percent,” NCB Capital said in a recent study. “The reversal was amplified by diminished international capital inflows and a drop in the oil export earnings that had underpinned the favorable liquidity situation during the boom....GCC banks' loan books grew by a meager 3.6 percent in 2009 and a slump in the real estate market forced many banks to set aside higher provisions for bad loans.”
