Many Gulf Arab banks posted double-digit second-quarter profit growth as low interest rates spurred demand for credit, but tougher lending curbs and costs linked to inflation may have eroded some gains, analysts said.

According to a Reuters survey, net income at the biggest banks in the United Arab Emirates, Qatar and Oman surged on project financing and branch expansion, but lenders in top oil exporter Saudi Arabia were hit by tighter lending curbs.

"The projects that are going on in Qatar and the UAE have trickled down into the banking sector," said Faisal Hasan, a senior financial analyst at Global Investment House, one of 14 investment banks and brokerages that contributed to the survey.

"Over all we are very positive that banks will do well this quarter," he said.

Banks across the world's biggest oil-exporting region have been buoyed by a seven-fold surge in oil prices since 2002 as governments and private investors funnel billions of dollars into infrastructure, real estate and industry.

National Bank of Abu Dhabi, the emirate's biggest lender, probably saw profits grow 20.5 percent in the second quarter, according to the average forecast of five analysts.

With soaring profits from the oil boom and stiffer competition at home, regional banks have been expanding outside their home markets, another factor that will drive profit growth, analysts said.

Qatar National Bank posted its biggest profit ever in the first quarter on higher revenue from foreign operations after buying into Jordan's Housing Bank for Trading and Finance last year.

Analysts said the biggest bank in Qatar, the world's top exporter of liquefied natural gas, probably posted a 38.1 percent surge in profit last quarter.

"Banks are also looking outside of their home markets and opening up branches diversifying their revenues," Hasan said.

Currency pegs to the ailing dollar in most Gulf oil producers have forced central banks to track seven US interest rate cuts since September, pushing real interest rates into negative territory and driving credit demand.

But as inflation soared to just under 15 percent in Qatar in March, a 20-year peak of 11.1 percent in the UAE last year and three-decade highs above 10 percent in Saudi Arabia this year, some central banks took action to tame liquidity growth.

Saudi Arabia's central bank has raised bank reserve requirements three times since November to force banks to keep more money in their vaults and lend less -- one factor behind more modest profit growth among banks in the kingdom.

Al-Rajhi Bank, the biggest Islamic lender in the Gulf Arab region by market value, will post a 5.6 percent gain in profit for the three-month period, according to the average forecast of four analysts.

"New restrictions on banks to prevent them from lending more has been a factor in modest growth," said Hesham Abou Jamee, head of asset management at Saudi Arabia's Bakheet Financial Advisers.

"In addition to the reserve requirement, some banks also lost a lot because of the global subprime mortgage crisis, but the big banks are relying more on lending," Abou Jamee said.

Inflation has also weighed on profits in other Gulf states, as banks raised wages and boosted housing allowances to retain staff, analysts said.

"The costs, especially in terms of staff costs, have risen very sharply in the last few quarters both because of inflation and because of investments in expansion," Hasan said. - Reuters