There were dramatic changes to the landscape of the GCC’s banking sector in 2009, and 2010 is set to be a year of recovery rather than growth.

From the 30 per cent growth enjoyed during the boom years of 2003-07, MEED’s annual survey of the top 20 banks by asset size shows that their combined assets grew by a mere 4.2 per cent to $784.5bn in 2009, down from 15 per cent growth in 2008. Eight of the banks in this year’s ranking posted falls in the value of their assets compared to just three the year before.

Banks’ average net profits weakened by 3.7 per cent to $13bn in 2009, driven mainly by higher provisions made for non-performing loans, which almost doubled at GCC banks from $6.8bn at the end of 2008 to $12.8bn by the end of March 2010.

Non-performing loans soared at regional banks after they grew their loan books excessively on the back of the ‘hot money’ that poured into the region for the anticipated GCC currency revaluation. When the financial crisis of 2008-09 hit, foreign liquidity rapidly evaporated, leaving banks with a sizeable funding gap, which they have been struggling to close ever since. Credit growth was muted in 2009 as a result, and this led to the sharp fall in loan and asset growth, with banks competing ferociously for new deposits.

The GCC banks will post marginally improved asset and profit growth in 2010, but it will continue to be a challenging environment.