Standard and Poor's, the credit ratings agency, forecasts an improving outlook for banks throughout the Gulf, though troubles remain for lenders in the UAE, Kuwait and Bahrain.
Gulf lenders on the up but questions remain for S&P
Banks in the Gulf are recovering from a turbulent start to the year, but question marks remain for lenders in the UAE, Bahrain and Kuwait, according to a report from Standard and Poor's.
"We believe the financial profiles of most of the GCC banks we rate will remain relatively stable or keep improving, but slowly because of sluggish loan growth and difficult funding conditions," the credit ratings agency said in the report.
It was hoped banks' troubles in the UAE would have eased after a recent string of improved profits, although the recent rescue of Dubai Bank by the emirate's Government had served as a reminder of the difficult conditions for lenders.
But the outlook for the sector was broadly positive, said Goeksenin Karagoez, a financial analyst at S&P.
"Except for Bahrain, we believe that most sovereigns, and by extension banks in the GCC countries, will continue to remain isolated from political unrest in the Middle East and North Africa," he said.
"Economic growth in the GCC should be relatively robust in 2011. We don't expect [banks'] core earnings to improve dramatically, however.
"Regarding funds, we expect deposit growth to remain slow and be limited to top-tier banks especially those with government shareholders."
The impact of ongoing corporate restructurings in Dubai, such as Dubai Group, would continue to weigh upon bank earnings, but the impact was expected to be "manageable".
"We should assume that the banks aren't that conservative and won't start to take provisions until the completion of restructuring agreements," Mr Karagoez said.
The Government's rescue of Dubai Bank last month and fears of further corporate restructurings are expected to have negative consequences for investor confidence.
Kuwait's banking sector was also expected to have a bumpy ride in the year ahead.
Emmanuel Volland, a financial analyst at S&P, said there was "potential for further surprises in investment companies going down … [and] for some kind of reshaping of the sector going forward".