The result has been that banks have made weak profits in 2009. In several cases, profits have disappeared altogether, as banks have made large provisions for bad debts.

This difficult environment has prompted all three major credit rating agencies – Standard & Poor’s (S&P), Moody’s Investors Service and Fitch Ratings – to downgrade several Gulf banks. The trend began in November 2008, when S&P downgraded six GCC banks from positive to stable.

In December, Fitch made the most far-reaching changes, cutting the ratings of 16 GCC banks. The same month, Moody’s downgraded four UAE banks.

One year later, the market has settled. This month, just one institution – Kuwait’s Gulf Bank – has been downgraded by S&P.

While Qatar’s banks have avoided downgrades altogether, Kuwait and the UAE’s banks have been the hardest hit, reflecting their higher exposure to real estate.

With most bad debt provisions now thought to have been accounted for, profit levels should start to improve this year. The challenge for Gulf banks will be to convince the agencies to raise their ratings.