KUWAIT – After two consecutive years of disappointing figures, the GCC banking sector sector resumed its trajectory of expanding profits in 2010/2011, Kuwait Financial Center’s (Markaz) latest report on the GCC banking sector said.

The catalyst for the growth is declining provisions after the spikes witnessed in 2008/2009 as a result of the global financial crisis.
The report also forecast that lending will stabilize further in 2012. However, the bulk is expected to remain directed to the public sector. Loans growth is forecasted at 10 percent for the GCC to $766 billion.
Additionally, top line growth is expected to resume though not at previous rates due to continued sub-par loans and deposits growth weakness across the region. The YoY growth in total revenues of the GCC banking sector in FY2011, however, was a commendable 10 percent.

The debt issues which caused a spike in provisioning are by no means history; however, muted private demand and rising NPLs remain sources of concern in 2011 and beyond.

As for lending, GCC banks continue to show muted growth. Only Qatar and Oman banks have managed to maintain double digit loans and deposits growth rates. For the rest of the GCC, a "new normal" of mid to high single digit growth is being registered.

Provisioning came down by two per cent in 2011 and are expected to reduce further in 2012 as a consequence of abundant provisions built up in 2009 & 2010. In UAE and Kuwait provisions are expected to remain above one per cent of loans.

Overall, following the bottom-line growth rates of nine per cent and 16 per cent in 2010 and 2011 respectively, the authors expect a surge of 21 percent in 2012.

The region’s central banks have been active in recent years as they respond to the ramifications of the financial crisis, which has had far-reaching consequences across the GCC. An over-extension of credit was seen as a high risk during the crisis. Most GCC countries maintain a loans-to-deposits ratio of 85 per cent-100 percent, although individual banks will routinely exceed these limits. –

Moreover, capital adequacy ratios, which provide banks with a buffer against shocks to the system, have been ramped up across the GCC, from around 8 percent-10 percent pre-crisis to a current limit of 12 percent; although, capital hikes and government support have brought the ratio to around 16 percent-20 percent across the GCC.

After three years of muted performance following the global credit crisis and weak economy that followed, 2011 proved to be a relatively good year, with two of the largest markets, Saudi Arabia and UAE posting strong recoveries. While Saudi and UAE had experienced declines in net income of over one per cent each in 2010, 2011 witnessed a net income growth of 16.5 per cent in the former and 18 per cent in the latter.

GCC banks as a whole registered a growth of 15.8 percent in 2011. Saudi and Bahrain saw considerable declines in provisioning of 39 percent and 16 percent respectively in 2011.

In 2011, GCC banks recorded two percent increase in interest income as against a four per cent decline the previous year. Non-interest income grew by 18 percent in 2011. Net interest income is up just four percent YoY in 2011 versus 14 percent in 2010. This weakness is predicated by a noticeable lack of turnaround in lending growth, the report added.