Credit growth across GCC to pick up pace, UAE to lag

Dubai: Credit growth across the Gulf region is expected to pick up pace this year to high single digits while it is expected to lag in the UAE and Bahrain, rating agency Moody’s Investors services said.

“Credit growth in Qatar, Oman and Saudi Arabia are recovering fast largely due to high oil prices and increased government spending. In the UAE, banks have become very conservative on lending while the recent central bank regulations have discouraged faster credit growth,” said Khalid F Howladar, vice president and senior credit officer of Moody’s.

Across the GCC, the rating agency projects a decline in non-performing loans with the exceptions of the UAE and Bahrain. “In the UAE problem loans are still climbing, but at a slower pace compared to last 3 years. Most of the asset quality issues in the UAE banking sector are largely linked to restructuring of Dubai entities,” said Howladar.

In Bahrain, credit growth has been slow largely due to the political risk. “The operating environment in Bahrain has been difficult which has prompted banks to slow down lending,” said Howladar.

On the liabilities side, most Gulf banks have benefitted from high oil prices which improved their deposit bases. Saudi banks benefitted maximum from low cost deposits from government departments and private individuals, positively impacting their overall cost of funding.

In the UAE, Moody’s analysts said the divergence between Dubai and Abu Dhabi banks will continue on both assets and liabilities front. While Abu Dhabi banks are expected to benefit from low cost government deposits and lend higher, Dubai banks are expected face higher cost of funds, lower loan growth and rising NPAs due legacy issues.

The rating agency said, overall the GCC banking sector is coping well with the regional and international events. “The region faced nearly 10 per cent ($20 billion) decline in financing by the European banks due to the financial crisis in Europe. While Asia’s share in financing of regional projects rose by about 2 per cent, the remaining funding gap that resulted from European funding retrenchment was covered by GCC banks,” Howladar said.