Bank net income depressed

UAE banks have maintained their relatively tight credit policy despite the economic recovery and this could depress their net income by nearly 10 per cent through 2011, a key Saudi bank has said.

In contrast with the UAE, banks in Saudi Arabia, Qatar and Oman are gradually opening up their credit lines after nearly two years of slow lending growth because of the 2008 global fiscal distress and regional debt default problems, National Commercial Bank (NCB) said.

The study described patters of banking lending in the six-nation Gulf Cooperation Council (GCC) as “persistently uneven”, adding that Qatar, Saudi Arabia, and Oman are leading the way in terms of credit growth.

By contrast, the situation in the UAE, Kuwait, and Bahrain remains one of relative stagnation in terms of bank lending, it added.

NCB’s figures showed bank lending in Saudi Arabia, the largest Arab economy, has experienced a gradual but increasingly consistent recovery which reached an annual pace of 7.2 per cent in June 2011, taking the total domestic bank credit to SR814.2 billion ($217 billion).

The positive momentum is largely due to improving economic fundamentals and confidence, thanks in large part to a significant increase in government spending commitments and the strength of the oil price, the study said.

“The situation in the UAE contrasts sharply to that of Saudi Arabia and the slow momentum is part due to tighter regulations about consumer credit, which are expected to cut bank earnings by some 10 per cent this year,” it said.

It showed the annual rate of growth of overall bank loans in the UAE reached 1.9 per cent Y/Y to a total of Dh982.1 billion in April.

During the three-month period to April, the annual rate of bank credit growth reached 1.8 per cent, the report showed.

“Growth in private sector growth was virtually stagnant with a 1.3 per cent Y/Y increase. By contrast, continuing an established pattern, lending to the public sector grew by a much more robust 14.1 per cent, reaching a total of Dh188.1 billion in April. This compared to private sector credit of Dh718.6 billion.”

Bank credit in Kuwait has also remained effectively stagnant during much of the past year, according to Samba, which put overall bank credit growth at only around 1.1 per cent Y/Y in June 2011 to stand at KD27.2 billion.

“In terms of bank credit, Qatar remains a regional star performer, although recent months have seen a pronounced slowdown in the pace of growth.”

The study showed overall bank credit in Qatar, the world’s top LNG exporter, surged by 10.1 per cent Y/Y to QR300.3 billion in May 2011.

It said credit to the private sector is now driving growth, as intended by the Central Bank following a recent rate cut. Private sector lending has been growing at double-digit rates for two successive months, reaching 15 per cent Y/Y to QR204.3 billion in May, the report showed.

Bank credit in Oman rose by a very robust 10.2 per cent Y/Y in April 2011, Samba said, adding that overall bank lending attained RO10.8 billion, the highest level on record. However, in something of a regional anomaly by now, the main driver of this strong growth was a 66.6 per cent Y/Y increase in credit to public enterprises to a total of RO1.1 billion, it said.

“Bahrain was the regional economy most directly affected by political unrest in the Middle East and North Africa and this has further depressed the lack of momentum in the country’s banking sector,” the study said.

Overall bank lending fell by an annualized 1.2 per cent in to BD5.7 billion in May 2011, led above all by a downward trend in credit to the public sector, which contracted by 51.2 per cent Y/Y.

By contrast, private sector credit has staged something of a recovery since February and grew at an annual rate of 2.7 per cent in May.

“The annual rate of bank credit growth during the three months to May was negative: -1.3%. The rate of growth in private sector credit was 1.9 per cent, as compared to a sharp 46.6 per cent drop in credit to the public sector.”

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