Ratings agency Standard & Poor’s (S&P) has said that Gulf banks have spent a total of $20bn on provisions for loan losses and impairments since the beginning of the financial crisis in 2008.

The agency says that while there are signs of improvement in the banking sector, 2011 will still be a tough year.

A continued strain on liquidity, coupled with the challenges of refinancing existing debt and funding future growth will all weigh on the performance of banks next year.

“We believe that the defaults of the Saad and Algosaibi Groups, the restructuring of Dubai World and the concerns that financial difficulties may spread to other Dubai-based government-related entities (GREs) have somewhat dampened global market access to the GCC-based financial institutions,” says Standard & Poor’s credit analyst Mohamed Damak.

S&P said Gulf banks are slowly rebuilding their liquidity levels to cope with upcoming maturities and that regional governments are highly likely to offer additional support to the banking system if needed.