The global financial crisis had an uneven impact on the Middle East’s banking sector. Asset growth at the Gulf’s top 20 banks was severely constrained last year, rising just 4 per cent, compared with growth of up to 30 per cent in recent years.
The GCC banks, which had fuelled a near decade-long consumer boom, were hit hard by the liquidity crisis and the collapse of the regional property market. This was compounded by exposure to defaults at two Saudi conglomerates and debt restructuring at Dubai state entities, and their provisioning against non-performing loans soared as a result.
Banks in the wider Middle East fared much better. Profits at Lebanon’s banks have continued to rise on a solid deposit base. The inherent caution in the country with a history of instability prevented banks from overextending themselves in recent years, while the flow of remittances into the country has continued unabated despite the economic turmoil. Financial institutions in Egypt, meanwhile, are reaping the rewards of an urban middle-class elite that has newly discovered the joys of credit.
The crisis has served to highlight the differences between the region’s established banking systems and the fledgling sectors in the GCC. While Cairo’s and Beirut’s banks eye further growth, those in the GCC are now focused on risk management.