GCC credit growth seen up 9% to $762bn in 2011

ollowing strengthening slowly in 2010, credit growth is forecast to improve substantially in the GCC countries, growing by nine per cent across the region.

According to a study by Kuwait-based Kamco Research, Gulf states recorded credit growth of 5.5 per cent last year to reach $699 billion (Dh2.565 trillion) will strengthen this year by nine per cent to $762bn, driven by the pick-up in domestic demand.

“We expect the strongest growth in Qatar with credit facilities estimated to grow 19 per cent to reach $88.7bn by the end of December 2010, fuelled by massive spending on infrastructure and LNG projects and the surge in international borrowing by sovereign entities. In 2011, credit is expected to sustain its 2010 level in line with the expected economic growth in the country,” Kamco analysts said in the report.

In the UAE, credit will remain sluggish and is forecast to grow at 2.8 per cent in 2010 and five per cent this year.

In Saudi Arabia, the credit is likely to rebound underpinned by the robust economic growth, positive developments in the property market and the fiscal stimulus plan implement by the kingdom to boost economic growth. “We expect credit to grow 6.5 per cent in 2010 to reach $209bn and then strengthen further to nine per cent this year when banks resume lending to the private sector,” the analysts added.

Commenting on the macro economic outlook, Kamco said recovery in the international capital markets and the global economy along with the stabilization in oil prices above $75 per barrel have enhanced the region’s outlook.

The report projected 4.5 per cent and 5.9 per cent growth for the GCC economy in real terms for 2010 and 2011, respectively.

Higher oil revenues will put Gulf states in comfortable fiscal positions that in turn will allow them to sustain their fiscal plans this year. But it warned that revival in credit growth remains the major challenge for the region in the sort-term.

Moreover, the fundamentals to strengthen the financial system and address the sluggish credit growth have improved as considerable progress has been made introducing new rules and regulations to the banking system that will protect it from potential financial risks in the future along with corporate debt restructuring.

The report highlighted enhancement of banking supervisions, adoption of more prudential economic policies by diversifying economies away from hydrocarbons, appropriate liquidity management as well as preserving fiscal space as major long-term challenges.

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