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Worst is Over for Banks in Gulf Cooperation Council

JEDDAH — The worst is over for banks in the Gulf Cooperation Council, or GCC, countries, a study said.

According to a study by the Kuwait-based Global Investment House, or GIH, the GCC economies are forecast to post growth, with their banks expected to perform better this year amid steady high oil prices.

“We believe that the GCC banks collectively have already seen the worst and 2010 will be a year of asset and profit consolidation before the banks embark on a steeper profitability trajectory in the years ahead,” the study said.

GCC banks are projected to turn around and register a 15 per cent growth in 2010 earnings.

It forecast that the net income of GCC banks is anticipated to grow by around seven percent in 2010 over the previous year.

“We believe that earnings growth will pick up pace further down the road managing a 2009-2012 CAGR of 20 percent,” GIH said.

The report noted that provisioning expenses of GCC banks jumped by nearly 64 per cent in 2009, underpinning the forecast decline in annual profits.

However, though “GCC banks are still to feel the spillage of credit deterioration,” it would be lesser than in 2009, “with collective provisioning requirements estimated to decline by 16 percent,” the study said.

It said that the provisioning charge (provision expense as a ratio of total income) is therefore expected to subside to 18 per cent in 2010 and to 10 per cent in 2012 after making a high of 23 per cent in 2009, and added that the NPLs ratio of GCC banks will stand at 3.1 per cent in 2009 and increase by 31bps in 2010 before sliding down by an average of 20bps till 2012.

The study said that Qatar and UAE banks have an edge.

“Interestingly, we believe that UAE banks enjoy the same stance as Qatari banks, despite the fact that they suffer from high exposure to defaulting conglomerates, high retail default and bottoming real estate prices,” the study said.

“This is because these negatives are offset by good and steady spreads, healthy top-line and bottom-line growth expectations and due to the simple fact that UAE banks in general and Abu Dhabi banks in particular enjoy government patronage,” it explained.

Moreover, GIH forecast GDP growth of around 2.4 per cent in the UAE, 3.8 per cent in Oman, 3.7 per cent in Bahrain, 3.3 per cent in Bahrain, and three percent in Saudi Arabia. Qatar’s economy would catapult by 18.5 per cent triggered by huge LNG ventures.

The report said that in Saudi Arabia, higher oil prices and a forecast budget surplus of SR107.7 billion would boost development projects and spur growth.

Overall projects in the Kingdom are estimated at around $615.3 billion as of December 2009, with merely 8.5 per cent are on hold. But as the Kingdom’s economy grows, the number of projects on hold is expected to drop to a half and enhance performance of petrochemical, banking and manufacturing sector.

Meanwhile, Qatar is estimated to post highest GDP growth among the GCC countries at 18.5 per cent in 2010.

In Oman, total projects are estimated at around $104 billion, of which only $6.5 billion or 6.2 per cent are on hold. Banking and construction sectors are likely to be major beneficiary. 
—habib@khaleejtimes.com