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GCC bank credit to slightly recover

It noted that the advanced economies have been a particular source of concern due to the Euro-zone sovereign debt woes and the unusually sluggish US recovery. (FILE)

By Nadim Kawach

Banks in Gulf oil exporters are expected to slightly ease the noose around their tight lending coffers in 2011, buoyed by a recovery in domestic economies and improving business confidence, according to Saudi Arabia’s largest bank.

Bank lending was one of the main areas of relative disappointment for the Gulf economies in 2010 and an important factor holding back the eagerly awaited private sector recovery, National Commercial Bank (NCB) said in a study sent to Emirates 24/7.

It attributed this lackluster performance mainly to the heightened level of risk aversion in the wake of the 2008 global financial crisis and the recurrent periods of market stress.

It noted that the advanced economies have been a particular source of concern due to the Euro-zone sovereign debt woes and the unusually sluggish US recovery.

Lending was also held back by the low interest rate stance of the central banks in the Gulf Cooperation Council as the US Dollar pegs continue to tie the region – with the partial exception of Kuwait – to the ultra-loose monetary policy of the US Federal Reserve.

“This has created little incentive for banks to engage in higher-risk lending. The emphasis has in many cases tended to remain on public sector and securitized loans. Additional problems have been caused by the slow process of adequately addressing risks posed by non-performing loans, something that led o another boost in provisioning in Saudi Arabia during the third quarter of 2010,” the study said.

“The ongoing regional and global recovery now looks likely to underpin a gradual improvement in credit conditions, however. This is further supported by a fairly consistent improvement in business and consumer confidence. Nonetheless, concrete progress to date has been gradual and uneven, with consistent and sustained positive momentum yet to emerge.”

In Saudi Arabia, the largest Arab economy, the recent growth of bank credit once again turned negative in November with a 0.3 per cent MoM drop. Total bank credit in November stood at SR774.6bn, of which SR742.6bn was accounted for by the private sector and SR32.0bn by public sector entities.

But the report noted that total bank credit in September-November was up 1.7 per cent QoQ and 3.2%YoY.

Credit to the public sector remains the most dynamic element with a 5.8 per cent QoQ and a 13.1 per cent YoY gain.

“The unevenness of the rebound in bank lending in the Kingdom has mirrored the broader economic recovery. Although private sector growth accelerated in 2010, the improvement was fairly modest from 3.5 to 3.7 per cent,” the report said.

“This compared to a 5.9 per cent expansion in the public sector. The situation is now finally beginning to show signs of more sustainable improvement thanks to growing optimism about the oil price outlook.”

Turning to the UAE, the second largest regional economy, NCB said lending by its 51 banks has been even slower to recover from the crisis. Total ending in October was Dh976.6bn, which represented a 0.3 per cent decline on September.

Credit to the private sector declined by 0.6 per cent MoM to Dh721.8bn, while public sector credit rose by 1.3 pert cent to Dh175.9bn. The quarter-on-quarter rate of increase in bank credit was 1.1 per cent between the May-July and August-October periods.

“The rate of increase for private sector credit was 0.5 per cent whereas public sector credit advanced by 6.1 per cent. Overall credit rose by 1.1 per cent QoQ. The annual rate of increase for total credit in August-October was 1.6 per cent. Private sector credit contracted by 1.9 per cent, whereas claims on the public sector advanced by nearly 12.4 per cent.”

In Kuwait, total credit facilities to residents have remained virtually flat in recent months, according to NCB.

The aggregate figure reached KD25.1bn in November after a small 0.1 per cent MoM decline. The quarterly total in September-November was 0.3 per cent ahead of the lending levels in June-August and 0.5 per cent above the same period a year earlier.

As for Qatar, the report said it has remained the most dynamic banking market in the region, adding that financial institutions in the country have continued to benefit from further capital injections by the Qatar investment Authority, which intends to increase its stakes in the national banks to around 20 per cent of their capital.

Total bank credit increased by 1.2% MoM to QAR296.8bn in November. Although private sector lending fell by 0.4 per cent to QR187.1bn, credit to the public sector (‘Government’ and ‘Government Institutions’) rose by 4.2 per cent to QR109.7bn.

In quarterly terms, Qatari bank credit in Sept-Nov was 3.9 per cent

of the total in Jun-Aug. The increase for private sector credit was 2.6 per cent while lending to the public sector rose by 6.4 per cent.

The annual rates of increase were 7.2 per cent for the private sector, a remarkable 65.6 per cent for the public sector, and an impressive 22.8 per cent in the aggregate.

Bank credit in Bahrain has lost the momentum observed during much of the year, standing at a total of BD6.0bn in November. Private sector credit declined by 0.6 per cent MoM to BD5.7bn, whereas public sector credit fell by 0.1% and totaled BD0.26bn.

Regarding Oman, the study said its bank credit resumed growth last year and rose by 0.7 per cent QoQ in Q3, as compared to a 0.3 per cent decline in Q2.