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Moving at Variable Speed

The GCC banking industry’s situation is extremely varied. While it is worrying in Bahrain and Kuwait, in Saudi Arabia and Qatar it is boom time once again, says Ranvir Nayar.

May 21, 2012 3:43 by

Other countries with substantial foreign portfolio investments also felt the squeeze, since foreign fund manag­ers scrambled to cut losses or to become liquid in a cash-strapped environment.

The lending growth between 2002 and 2008 was anywhere between 30 to 40 percent a year, and obviously this could not be sustained. So when the col­lapse came, banks in two countries saw the maximum deterioration in their asset quality – the UAE and Kuwait.

“Moreover GCC banks, which regu­larly tapped foreign credit markets for wholesale funding saw their credit lines dry up, which was ever more exacerbated for banks that had heavy maturities com­ing up with non-availability to refinance. As a result, banks became excessively illiquid and local interbank rates jacked up considerably, making borrowing ever more costly and difficult. It was only through government intervention that banks finally saw some respite. Credit lines were established by the respective central banks. For example, in the UAE, the Central Bank of the UAE set up two credit lines amounting to AED120 billion for banks to borrow when required,’’ says Faisal Hasan, Head of Research at Kuwaiti financial services company, Global Investment House.

Hasan says that before the crisis, GCC banks had implemented an aggres­sive lending policy that came with rather loose loan qualification requirements. “Lending to corporates, in many cases, was based on family names and social standing rather than actual quality (cred­itworthiness) of borrower. Not surprising­ly, then, the banks suffered from massive delinquencies in both consumer and cor­porate lending with their NPAs burgeon­ing up quarter after quarter during the crisis.


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