Gulf Arab banks top Q2 profit forecasts on oil boom

"We are seeing a liquidity boom in the UAE and Gulf region," said Raj Madha, a banking analyst at Cairo-based investment bank EFG-Hermes. "One of the biggest factors is oil, another is the amount of project financing."

Qatar National Bank, the largest lender in the world's biggest exporter of liquefied natural gas, posted a 71 percent surge in second-quarter profit.

Abu Dhabi's second-biggest bank, First Gulf Bank, said quarterly earnings grew 70 percent, exceeding five forecasts by analysts in a Reuters net profit survey last month. For full results of the earnings poll, click on

"The UAE banking sector is expected to post profit growth between 30 and 45 percent in the first half," Ahmed al-Tayer, chairman of Emirates NBD, the Gulf's biggest bank by assets, told reporters on Wednesday.

His bank would post profit "on the higher side of this" he said.

Credit boom

Gulf Arab banks -- which have mostly avoided exposure to the U.S. subprime mortgage crisis -- cut interest rates in recent months as dollar pegs in all Gulf states but Kuwait compelled central banks to track seven U.S. rate cuts since September.

The cuts drove real interest rates into negative territory as inflation soared to a more than 30-year high in Saudi Arabia, 20-year high in the UAE and records or near records in Qatar, Kuwait and Oman.

Real interest rates reflect the official rates charged by banks minus inflation, and when they are negative, it makes more sense to invest money in real estate or stocks than keep it in the bank.

"It's core banking income that is driving profits in retail and commercial segments," said Faisal Hasan, a senior financial analyst at Kuwait-based Global Investment House.

"Banks have also boosted fee-based income from investment banking units," he said.

First Gulf's net interest income and income from Islamic financing more than doubled, according to data released Wednesday.

But costs related to soaring inflation -- including staff costs -- and expansion would weigh on the banking sector's bottom line going forward, analysts said.

In Kuwait, where the central bank tightened lending curbs in late March to tackle record inflation, National Bank of Kuwait, the biggest bank, boosted a second-quarter profit rise of almost 16 percent, ahead of a Global Investment House forecast.

In top oil exporter Saudi Arabia, Riyad Bank and Al-Rajhi Bank kicked off the earnings season in the past week by topping most analysts' expectations, shrugging off tighter bank lending curbs introduced to stave off inflation.

"Regulations and laws to curb lending will take a few quarters to creep in," Hasan said.