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 kippreport
Secondly, due to this aggressive lending policy, banks had become dangerously insolvent with loan-to-deposit ratios running above the 100 percent in many cases or touching limits set by respective central banks,’’ he says.
However, now three years after the crisis, banks and regulators have both become smarter. Regulators have imposed curbs on consumer lending by increasing the loan qualification requirements of the borrower, which translates directly into the borrower’s capacity to service debt. Stricter ageing terms for NPAs were also introduced to pre-empt identification of prospective defaulters. Banks themselves have slowed down lending and grown their deposit base/wholesale borrowing, deleveraging themselves in the process and becoming more liquid. Drive to provide well for NPAs has resulted in lower profits, but in due course made banks safer.
GIH says GCC banks covered by it exhibited a growth of 16 percent in 2011 and 10 percent after adjusting profits for the one-off charge of $852 million booked by two leading UAE banks (Abu Dhabi Commercial Bank and the Emirates NBD). What is comforting for the banks in the region to note is that growth came despite an 11 percent rise in provision expense and 12 percent rise in operating expenses. Operating income was driven by net interest income that rose by 8 percent, thanks to good volumes. Non-interest income also remained buoyant, growing by 16 percent during 2011.
A research report by Qatar National Bank agrees with other analysts on the situation of the asset quality in the region, seeing signs of improvement in 2011,even though the diversity remains high, with Qatar banks holding NPAs as low as 2 percent and Kuwait as high as 8.9 percent.