GCC banks hike provisioning

09 February 2016

Problem loans steady in 2015

Banks in the GCC have overall increased their impaired loans provisions and charges by 5.5 per cent, or $358m among banks that have released detailed results.

No Saudi Arabian banks have reported these figures, along with many in Bahrain and Kuwait. They are likely to increase provisioning slightly.

However, Qatar saw its impairment provisioning fall by 6.9 per cent as Doha increases spending ahead of the 2022 World Cup.

Oman’s impairment provisioning rose by 9.7 per cent. This suggest banks anticipate a growing level of impaired loans in 2016, as Oman’s fiscal deficit widens and its economic growth slows.

In the UAE, impairment provisioning rose 7.5 per cent. This is despite many banks reducing their non-performing loan (NPLs) in restructurings of pre-2008 debt.

The National Bank of Kuwait increased provisioning by 12.2 per cent. CEO Isam al-Sager told Saudi Arabia’s Al-Arabiya news channel that NBK would further raise provisioning if asset and equity prices continue to decline.

GCC banks net impairment provision ($m) 
Country20142015change ($m)change (%)
UAE373540152807.5%3/18 banks yet to report
Qatar759707-52-6.9% 
Saudi Arabia   All 12 banks yet to report
Oman258283259.7% 
Kuwait16271712855.2%5/11 banks yet to report
Bahrain1031232019.42%7/10 banks yet to report
Total648268403585.5% 

NPL ratios for 2015 stayed steady across the GCC banking sector, but some individual banks saw their asset quality decline.

Sharjah-based United Arab Bank saw its NPLs rise from 2.6 in 2014 to 4 per cent of lending in 2015 as it pre-emptively cleared its books. It raised its provisioning by 137 per cent.

This is thought to be due to high exposure to small and medium enterprises, which saw a wave of defaults in late 2015 as the UAE’s economic growth slowed.

This is thought to have slowed in early 2016 as banks take a more collaborative approach with businesses struggling in the weaker economic climate.

Dubai’s Mashreq Bank reported its NPL level rose to 3.7 per cent in 2015 compared to 2.8 per cent in 2014.

Increased provisioning suggests banks are expecting a difficult 2016, but Mashreq decreased its provisioning by 7.2 per cent.

Several GCC governments, including Saudi Arabia, Oman and Bahrain continued spending in 2015 but have cut their 2016 budget

Emirates NBD, the UAE’s largest bank, reduced its provisioning by 32 per cent as Dubai’s government committed to higher spending.

The most troubled sector has been contracting as companies struggle to manage liquidity while fewer projects are in the market. MEED has reported that Saudi Binladin Group is in talks to delay some debt repayments, while Dubai’s Drake & Scull International is having to sell its non-core assets to generate cash.

Due to the strong capital profiles and profitability of GCC banks, the financial sector expected to weather the likely decline in asset quality in 2016.

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