The total shareholder return (TSR) by the Middle Eastern banks improved to 3.6 per cent in 2009 from a decline of 46.8 in the previous year, according to a study by Boston Consulting Group (BCG).

This subdued recovery, while indicative of the challenges facing both the region and specific institutions, belies its potential for sustained growth and high profitability, BCG analysts said in the study.

TSR is the total return of a stock to an investor – capital gain plus dividends.

Performance varied widely in the region with four – Lebanon, Oman, Abu Dhabi, and Saudi Arabia — of the nine banking markets posted TSRs of at least 20 per cent.

Jordan, Dubai, Bahrain, and Kuwait posted TSRs below -14 per cent. Qatar posted a TSR of 7.5 per cent. In some cases, the weak performance of a banking industry stemmed from a sharp decline in the share price of a single bank or from macroeconomic or political factors in the local market.

Dr Reinhold Leichtfuss, Senior Partner and Managing Director at BCG, said: "Stock Exchanges tend to anticipate trends before they occur and while the crisis hit the markets by end of 2008 negative expectations had been factored in and by 2009 the markets were already betting on the recovery of the banking industry. This is also true for the UAE where the banks were less affected than the rest of the world in the beginning of 2008. UAE banks were hit by the crisis in the second half of 2008 in terms of a liquidity shortage affecting their business.

"In 2009, banking stocks could recover across the globe. Nevertheless, the UAE with the tumbling real estate market, played a different game. Therefore, while worldwide banks could recover by 50 per cent on average, the TSR in the UAE could not recover to the same extent. While Abu Dhabi-listed banks achieved a 2009 TSR of 25 per cent, shareholders invested in banks listed on the DFM suffered from a negative TSR of 27 per cent. This also shows that not all banks have been affected equally by the turbulences in the real estate market in the region, helping the overall TSR reaching 3.6 per cent for 2009."

The top five TSR performers in the UAE banking were First Gulf Bank (83 per cent), Union National Bank (65 per cent), Dubai Islamic Bank (62 per cent), Abu Dhabi Islamic Bank (20 per cent) and Commercial Bank of Dubai (15 per cent).

It took time for the financial crisis to affect Middle Eastern banks, most of which had little or no direct exposure to toxic assets.

When it did materialise in August 2008, it was primarily a liquidity crisis rather than a credit crisis.

The impact of the crisis was not only delayed but also less severe. The region's banking TSRs did not fall as steeply as they did elsewhere. Nor did they bounce back as much, particularly in comparison with markets that had overcorrected bank stocks.

Although Middle Eastern banks have not staged a dramatic recovery, most have proved to be resilient during the crisis.