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2010, A Difficult Year Predicted For Gulf banks: Standard and Poors

Kuwait City, Kuwait : 23 February 2010

The ratings agency Standard and Poor’s said on Tuesday that banks in the energy-rich Gulf region will face another difficult year in 2010 as they carry on to clean up their loan books, affecting performance.

The agency said that the global economic deceleration and monetary crisis have put the banking sector in Arab states of the Gulf to the trial over the past 18 months, as scores of negative rating actions were taken during 2009.

The agency said in a report that the rating actions largely reflect the results of the adverse economic conditions on profitability and asset quality, particularly for banks in Dubai and Kuwait.

All Qatari banks and most Saudi banks had done relatively better than lenders in the other Gulf States.

Standard and Poor’s said that in spite of the fact that they remain watchfully hopeful that economic conditions will get better, we do not rule out further negative rating actions in the short term. Lower business volumes, asset quality worsening and successive provisioning needs, as well as pressure on liquidity seem to be affecting the creditworthiness of Gulf banks to differing extents.

Nearly all banks in the Gulf have been affected by exposure to the Saudi groups Saad and Al-Gossaibi, troubles in the Kuwaiti investment sector and the debt crisis in Dubai. This as well as other factors forced banks to make provisions.

A report last month by Kuwait Financial Centre (Markaz) said Gulf banks are anticipated to have made provisions worth 9.4 billion dollars for 2009 against mutilation of assets and credit loss, a gigantic 40 percent rise from 2008.

The 61 banks in the six Arab states of the Gulf region made provisions worth 6.41 billion dollars in the first nine months of last year, a five-time increase over the humble 1.8 billion dollars set aside in 2007.

Provisions soared to 6.68 billion dollars in 2008. Standard and Poor’s said the provisions were projected to drop somewhat in 2010.

Andrew Reid, Staff Writer, Gulf Jobs Market News
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