Gulf banks are showing signs of improvement after spending more than US$20 billion (Dh73.45bn) on loan loss provisions and investment impairments over the past two years, Standard & Poor's Ratings Services (S&P) says. "We believe the asset quality of Gulf banks should improve from next year and that their good margins and efficiency will provide a solid foundation for their return to high profitability," said Mohamed Damak, a credit analyst at S&P.
Nevertheless, the ability to fund future growth, improve liquidity and refinance the stock of existing debt was the next set of challenges for Gulf banks, it said. The defaults of the Saad and Al Gosaibi groups, the restructuring of Dubai World and concerns that financial troubles may spread to other DubaiGovernment-related entities had dampened global market access to GCC banks, Mr Damak said. The agency said the majority of its outlooks on the ratings of UAE banks remained "negative" to reflect its views about the challenging operating environment they faced.
In another sign the country's banks have still to recover fully from the financial crisis, private-sector credit growth declined by 3.2 per cent between June last year and the same month this year, data released by the Central Bank yesterday showed. Claims on the private sector fell to Dh721.1bn in June, down from Dh744.7bn in the same month last year. Private-sector credit rose from Dh716.9bn the previous month.
"Banks have been more cautious after first Saad and Al Gosaibi last summer, few signs of the economic environment getting better and then exposure to Dubai World," said Janany Vamadeva, a senior analyst at HC Brokerage in Dubai. Dwindling appetite from private-sector businesses for credit at the same time as a rise in government-sourced financing may also have contributed to the decline, she said.
Property and mortgage lending increased in the 12 months to June this year by 16 per cent, rising from Dh137.2bn to Dh159.8bn. Rather than indicating signs of a recovery within the property sector, analysts said the figures may instead be attributed to payments for off-plan projects started before the downturn in the property market. Property prices have fallen from their peaks in 2008 while two of the biggest mortgage lenders, Amlak Finance and Tamweel, remain locked in government-led talks over a possible merger.