GCC Banks Rebound Despite Bad Debts

GCC banks have spent more than US$20 billion on provisions for bad debt and lost investments but are showing signs of returning to high profitability, Standard and Poor’s said. The rating agency said that the GCC banks it rates have spent “more than US$20 billion on loan loss provisions and investment impairments since 2008.” But it said it believed those banks appeared to show “signs of improvement,” saying that the economies of the GCC were starting to recover, thanks to high oil prices and government policies.

“We believe the asset quality of GCC banks should improve from 2011 and that their good margins and efficiency will provide a solid foundation for their return to high profitability,” said Standard and Poor’s credit analyst Mohamed Damak. But the agency added that challenges lay ahead. “Improving liquidity, funding future growth, and refinancing the stock of existing debt are the next hurdles facing GCC banks.” S&P said that government support and good capitalisation levels of regional banks were positive factors which would help future recovery, but added that its outlook on most lenders in the UAE remained negative due to the operating environment.

The banks were slowly rebuilding their liquidity “to face upcoming maturities,” the statement said, also underscoring government “interventionist” policies in the banking sector as a safety net. “We believe that these countries are highly likely to provide extraordinary support to their highly systemically important banks in case of need,” it added. The agency also highlighted the strong capitalisation of the GCC banks, saying that it calculated average risk-adjusted capital (RAC) for those banks at 10.2% before adjustments at year-end 2009, almost twice the average ratio for the world’s top 45 banks. “This provides a sturdy shelter from unexpected shocks,” it said.- Gulf Times