TIMES were good for Gulf banks last year, but not quite as rosy as in 1995. The MEED annual survey of results from the financial institutions of the region shows that the aggregate growth of banks' balance sheets and profits, while still healthy, has slowed down (see pages 39-45).

The assets of the banks covered by the survey grew by 3.1 per cent last year to $223,800 million, compared to growth of 6.1 per cent in 1995 and 6.7 per cent in 1994. Lending grew much more slowly in 1996, at only 1.8 per cent compared to 8 per cent in 1995 and 13 per cent in 1994. The main reason for this fall-off in demand for credit is probably the strength of oil prices last year, which filled the wallets of the Gulf Arab states and, in the case of Saudi Arabia at least, led to the government paying off some of its outstanding debts to the private sector.

The banks' aggregate net profits grew by 13 per cent to $3,047 million, a healthy increase but not much compared to the 23 per cent growth clocked up in 1995. In 1994, the industry's net profits contracted by 1.4 per cent, as many banks took a hit on the international bond and equity markets. The strong performance of these markets in 1996 was good news for those banks with large overseas investment portfolios, though world interest rates have started to inch upwards this year.

The 1996 results show few dramatic changes from the previous year in the relative performances of the banks, with profits growing steadily at most. Arab Banking Corporation (ABC) remains the largest of the banks in asset terms, and bankers will be watching for the outcome of the forthcoming strategy review at what is, after all, one of the few Arab banks with a truly global presence.

Islamic commercial banks have repeated their past strong performance. Al-Rajhi Banking & Investment Corporation remained the most profitable bank in the Gulf, aided by its sizeable non-interest bearing deposits. Its domestic market seems secure from competition by other Islamic banks for now, but the launch of a new, large Islamic commercial bank in Abu Dhabi later in 1997 seems likely to have an impact on some of the Gulf's smaller Islamic institutions.

Total assets: after ABC, the large Saudi and Kuwaiti banks continue to dominate the rankings. National Commercial Bank, which has a bigger capital base than ABC, is moving closer to the top slot with assets of $21,342 million as against ABC's $22,988 million. Saudi British Bank, which had a good year in 1996, has edged Al-Bank Al-Saudi Al-Fransi out of the top 10.

Loans and advances: last year saw little change in the rankings of the Gulf's banks for loans and advances. Saudi American Bank (Samba) has slipped behind some of the other large banks, while Saudi British Bank makes it back into the top 10. Gulf Investment Corporation (GIC) has moved up the table, though its commercial banking subsidiary, Gulf International Bank, remains eighth out of the 10.

Customer deposits/shareholders' equity: the rankings in these two categories are little changed from 1995, with ABC and the big Saudi and Kuwaiti banks still in pole position.

Net profits: Saudi American Bank (Samba) still ranks second to Al-Rajhi in terms of net profits, despite the impact of provisions. However, its larger Saudi rival, National Commercial Bank (NCB), is now close behind.

Return on assets (ROA): the regional average is 1.36 per cent. Out of 66 banks surveyed, 47 produce a higher-than-average return. The return on assets is so low because some of the 19 banks with returns below the average - including ABC, NCB and GIC - are also the biggest in the region. Once again, the top performer this time was the niche Islamic financier, The International Investor, followed by Investcorp which had a stellar year in 1996. Some of the smallest banks in the Gulf produced some of the highest returns, including the tiny, UAE-based Commercial Bank International (CBI) with 4.56 per cent and the Bahrain-based United Gulf Bank (UGB) with 4.57 per cent.

Return on equity (ROE): a similar picture appears for ROE where Kuwait Finance House has been knocked off the top slot by Oman Arab Bank with 33.33 per cent, followed by National Bank of Oman and Bahrain Islamic Bank. Qatar Islamic Bank also sharply increased its ROE, as did CBI. The regional average is 14.3 per cent. The lowest ROE last year was that of The Arab Investment Company (TAIC) at 2.6 per cent.

Equity to assets ratio: most banks had a ratio of between 6-15 per cent, with the least leveraged being United Gulf Bank (UGB) at 64 per cent and the Arab Petroleum Investments Corporation (Apicorp) at 44 per cent. Several Saudi banks have increased their capital this year, moving them higher up the chart. These include Saudi Investment Bank (Saib) and Saudi Cairo Bank (SCB).

Loan-to-asset ratios: the Omani banks are by far the biggest lenders as a proportion of their total assets, all at about 70 per cent. Most of the region's large banks have loans equal to less than half of their assets.