Arab banks should ease their tight grip on lending after they started to recover from the global fiscal crisis to support domestic development and spur growth, the Arab world’s top banker has said.
Adnan Yousuf, Chairman of the Beirut-based Union of Arab Banks (UAB), said Arab banks should also concentrate on their region in their investment and funding operations to avert risks in global markets.
Writing in the UAB’s monthly magazine, the Arab Banker, Yousuf said banks in the region are now on their way towards full recovery following the release of good financial results in the first half of 2010. He added that Arab banks had also built up a strong capital base while their dab debt remains very low, not exceeding one per cent of their total loans.
His figures showed the combined assets of the Arab world’s nearly 470 banks surged by around 30 per cent in 2008 and nearly 10 per cent last year.
“After most of the Arab banks published their results for the first half of 2010, we can state that these banks are on the right track to recover from the repercussions of the global economic crisis…these results also showed an increase in balance sheets mainly in deposits,” he said.
“But these banks are still tight in their credit…we call on our banks to seize the chance of the Arab region’s bad need for development funding and pump investment into local markets…we want our banks to work for restoring the investors’ confidence and increase financial dealings among them…… it is time that they resume lending to support economic growth in their countries…the current strict lending policy is not justified at all.”
Yousuf, a Bahrain who heads Al Baraka Islamic Bank, said slow domestic credit by Arab banks had only led to “spreading negative psychological effects and losing investors’ confidence in the Arab world.”
“This reflected adversely on the Arab markets which suffered from an unnecessary decline that surpassed the decline of Dow Jones index and the Asian and European indices,” he said.
“We affirm that this strictness on the part of the banks does not make sense especially after we saw our central banks rush after the crisis to support these banks by providing liquidity to them.”
UAB’s figures showed lending by the region’s banks plunged by nearly 71 per cent last year as the coffers of some banks dried up because of the global credit tightness and others were scared off by debt default problems after the crisis.
Banks in the UAE and neighbouring Gulf oil producers were hit hardest despite deposit growth and massive rescue plans announced by their governments, with most of them sharply tightening their lending belts and others becoming more selective in providing credit to the private sector.
From a record $186 billion in 2007, total loans extended by the Arab banks slumped to about $136 billion in 2008 mainly because of a sharp fall in the fourth quarter in the aftermath of the global crisis.
Credits tumbled to only around $39 billion in 2009 and a large part of them were provided by banks outside the oil-rich Gulf.
In the Gulf Cooperation Council (GCC), the problem was worse as credit plummeted to one of its lowest levels in history after climbing to new peaks during the boom years of 2007 and 2008.
Figures by Moody’s Investor Service showed domestic credit growth in the six-nation GCC hit an all time high of around 34.9 per cent in 2007 before slipping down to nearly 33.4 per cent in 2008. It tumbled to only 2.2 per cent in 2009 and remained near that level through the first nine months of 2010.
“We urge all Arab banks to exploit their growing strength in the aftermath of the crisis invest at home…they should act as a locomotive for economic stimulation in the Arab world…Arab banks should now open their coffers to the Arab markets and in turn, Arab governments should open their economies to their banks…this is what we are working for now and hope to achieve,” Yousuf said.