Gulf banks to make profit despite credit setback
Manama, September 15, 2010
Banks in the GCC region will continue to make profits despite higher provisioning and a slowdown in credit growth, according to a report by Kuwait-based investment firm Kamco.
The GCC banking system has shown resilience to the financial crisis helped by the liquidity and prudential measures introduced by the monetary authorities.
'The banking systems had few vulnerabilities that were revealed by the financial turmoil and the adverse impact it had on the economies of the GCC countries,' the report said.
'Among those are high exposure to the real estate and construction sectors and stock markets along with increased reliance on external financing and capital inflows especially in the UAE,' it said.
The banking sector in Bahrain was adversely affected by the financial crisis and that was evident in the sharp drop in 2009 profitability with the net profit of commercial banks shedding 35 per cent to $362 million, the report states.
The main reason behind this decline was the elevation in loan loss provisions and the impairment of investments which amounted to $330 million and $362 million in 2008 and 2009, respectively.
'The retail banking portfolio in Bahrain is highly exposed to the real estate and construction sector and households, which together constitute around 56 per cent of banks' loan portfolio, around 28 per cent of total loans for each segment as of May this year,' it says.
'The risk of default on personal lending, which are mainly secured by salaries, is believed to be minimal and manageable,' the report added.
'In Saudi Arabia, the banking system is adequately capitalised and showed more resilience to the consequences of the financial crisis than its peers in the GCC region,' the report said.
In Kuwait, the banking sector is expected to continue to face challenges in the medium term while in the UAE, the banking sector's capitalisation remains sound and is sufficient to absorb the debt problems faced by Dubai Government Related Entities.
The Qatar banking sector is mostly concentrated in the consumption, real estate and construction and public sectors which together constitute around 71 per cent of Qatari banks' loan portfolio but the real estate and construction sectors account for around only 21 per cent of total loans.
In Oman, banks are expected to remain profitable despite a considerable increase in provisioning, the report adds.-TradeArabia News Service