Gulf banks are expected to start growing their loan portfolios in the coming months after having experienced a severe slowdown in lending last year.
“In the first nine months of 2009, we saw flat loan growth in the 30 Gulf banks that we rate,” says Emmanuel Volland, director of financial institutions ratings at international ratings agency Standard & Poor’s.
Gulf banks grew increasingly cautious about loan approvals in 2009 because of tightening liquidity in the region.
According to S&P’s calculation, the average loan-to-deposit ratio was 98.4 per cent and total liquid assets were 18.1 per cent of total assets on 30 September 2009 for the entire GCC banking system, excluding Bahrain.
“But there are now some early signs that banks might be shifting towards a slightly higher appetite for lending, especially the Saudi banks,” says Volland.
“This is important as there has been concern that regional banks have shifted from very aggressive loan growth in 2008 to a point where they’ve almost stopped any new lending,” he adds.
However, concerns remain over the ability of banks to increase lending activities going forward until they have boosted their deposits.
In particular, UAE banks are facing a shortage of liquidity, with the gap between overall bank loans and deposits widening to AED47.1bn ($12.8bn) in January this year from AED35.1bn in December 2009, according to data from the UAE Central Bank.
“We might see some additional measures to try and encourage banks to increase lending, not only in liquidity injections of support, but through other incentives,” says Volland.