The provisions by banks across the GCC are expected to decline to $ 8.76 billion in 2010 after a year of extraordinarily high provisions kept aside for 2009, said M. R. Raghu, head of research at Markaz Kuwait Financial Centre (Markaz).
“This year will be better with most banks expected to show better balance sheets as most GCC countries, including the UAE are showing clear signs of growth,” Raghu, who co-authored a Markaz report of GCC bank provisions with Layla Al Ammar, told Khaleej Times.
Compared to $ 1.7 billion for 20072007, provisions by 61 banks in the region increased five-fold in 2009.
With Gulf banks increasing provisions rapidly in the wake of the worldwide crisis, the year 2009 “can truly be declared as a year of provisioning,” Raghu said.
The Markaz report said it expected UAE provisions to increase to $ 4.8 billion in 2010, especially should lending continue to be tight while banks continue to guard against defaults.
The first nine months of last year, the UAE banks made provisions for $ 2.57 billion due to their higher exposure to troubled Saudi groups Algosaibi and Saad, while Saudi banks set aside $ 1.1 billion and Kuwaiti banks $ 1.8 billion.
In 2008, provisions to loans ratio rose to 1.13 per cent from an average of 0.58 per cent between 2003-2007, the report said.
Markaz report said both loans and deposits, which had enjoyed robust growth levels up until the fourth quarter of 2008, “took a nasty turn in 2009.”
The overall loan growth ran at just 4 per cent weakly supported by a deposit growth of 3 per cent, it said. “We expect a slight pick up in 2010, but no where near the historical average. Clearly, 2010 will be a year of recovery and learning,” the report said. The report said lending activity stagnated across the GCC in 2009, with growth rates falling well below historical averages, as banks have hoarded cash and been hesitant to extend financing in a tenuous economic environment.
GCC loans have amounted to roughly $ 606 billion in the third quarter 2009, a 5 per cent growth from the same period in 2008.
“Saudi Arabia has been the main drag on loans growth, growing just 1 per cent in third quarter 2009 compared to the same 2008 period, in stark contrast to the 25 per cent average growth in loans seen in the last five years,” the report said.
“While we expect to see some recovery in lending in the GCC, we still expect Saudi Arabia and the UAE to be a drag on overall GCC loans growth. Hence, we have a forecasted 2010 loans growth of 8 per cent for the GCC to $ 667 billion,” said the report.
