GCC urged to spur bank credit

Gulf governments have been urged to provide credit guarantees to local banks to encourage them to ease domestic lending curbs they introduced in the aftermath of the global financial distress to support growth in member states.

Leaders of the private sector in the six-nation Gulf Cooperation Council (GCC) made the recommendation in their semi-annual report, which they will discuss during their conference in Kuwait on Sunday, their chief said on Saturday.

Abdul Rahim Naqi, secretary general of the Dammam-based Federation of the GCC Chambers of Commerce and Industry (FGCCI), said the report would be debated by executive directors of the Federation along with several other issues.

One of the main topics in the report is that GCC governments should consider providing incentives in the form of loan guarantees to the more than 150 banks operating the region to prompt them to relax their strict lending policy, he said.

“The Federation believes there is a need for the GCC governments to pursue fiscal stimulus programmes to support the private sector in facing the challenges of the present stage,” Naqi said in a statement sent to Emirat4es 24/7

“The Federation has also drawn up a plan which could be implemented by the GCC governments…it calls for providing banks with partial guarantees in exchange of their credit facilities to the private sector…..the plan also envisages government support for local companies which could face trouble because of credit shortages provided these companies embark on restructuring programmes to ensure their feasibility and viability.”

Banks in the UAE and other GCC members have been reluctant to extend large loans to the private sector following the global crisis and regional debt default problems. Private institutions have also sharply scaled down their borrowing activities because of economic uncertainty and a decision by most of them to shelve key projects and expansion plans.

Official data showed 2009 was one of the toughest years for GCC banks in terms of lending and other activities because of the crisis and the debt default problems involving the Saudi Saad and Algosaibi family business conglomerates.

Banks further tightened their lending noose after sharp fluctuations in the region’s stock markets and a downturn in the real estate sector.

Last year was in sharp contrast with 2008, when bank credit recorded one of its highest growth rates before plunging in the last quarter as a result of the crisis.

But 2008 remained one of the best years for the banks in terms of lending operations and performance, with many banks recording a sharp rise in loan-to-deposit ratio and some of them even having loans climbing above deposits.

In the UAE, which has the largest Arab banking sector, resident credit by its 23 national banks and 28 foreign units jumped by 48 per cent during 2008 from Dh626.6 billion at the end of 2007 to nearly Dh924.3 billion at the end of the year.

Although loans picked up in the second half of 2009, they were sharply slower through the year than in 2008, growing by just 1.02 per cent. They slightly picked up by around two per cent in the first nine months of 2010 but remained way below the 2008 boom.

In Saudi Arabia, which has the second largest Arab banking sector, claims on the private sector grew by around 2.1 per cent in the first half of 2010. They had recorded a zero growth through 2009 compared with a massive 27.2 per cent increase in 2008.

But the figures by the Saudi Arabian Monetary Agency, the Kingdom’s Central Bank, showed bank claims on the government picked up by around 13.4 per cent after plummetting by nearly 24 per cent in 2009.

Domestic credit in other GCC nations has also been very slow but analysts expect normal lending in the region to start recovering in 2011 because of better economic conditions.

The slackening domestic credit in the GCC has been cited as one of the key factors that stifled growth last year, when some regional economies shrank and others recorded a sharp slowdown compared with the previous year.

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