Gulf banks face Q4 results woe

PROFITS PREDICTION: Banks in the Gulf region are expected to show a drop in fourth quarter profits. (Getty Images)

Gulf banks are poised to report weaker fourth-quarter profits this month on growing provisions for bad loans and writedowns on investment losses as the region suffers the fallout of a global financial crisis.

Qatar National Bank (QNB), the Gulf state's biggest bank, shocked markets this week with a 0.8 percent decline in quarterly profit - missing a 28-percent earnings growth forecast of analysts in a Reuters survey last month.

QNB shares have slid almost 14 percent since it said on Tuesday it booked 198 million riyals ($54.39 million) of provisions for credit losses on loans in the quarter, sending bank stocks across the Gulf lower as investors brace for more negative news.

Bank Muscat, Oman's biggest bank, has warned it could book 26.9 million rials ($69.87 million) in impairment charges in 2008. Its stock fell over five percent on Thursday.

"We may see much bigger provisioning in the fourth quarter than I had anticipated," said Raj Madha, regional banking analyst at EFG-Hermes. By the second quarter, a pick up in Gulf non-performing loans (NPLs) was a "certainty", he said.

"We will see a drastic drop in asset management revenues, we will see trading income evaporate, a drop in profits from the property sector and a massive drop in loan growth."

The fortunes of banks in the world's top oil-exporting region, including Saudi Arabia, have shifted as sharply and quickly as its economic growth outlook in the last six months.

Oil prices have tumbled more than $100 a barrel since a July peak, ending the Gulf's oil-fuelled economic boom that had helped regional banks boost their lending businesses and post quarter after quarter of double-digit profit growth.

Banks are now restricting lending as they face tight credit markets and, especially in Dubai, a real estate price correction that has prompted companies to lay off thousands of employees, raising the prospect of defaults on mortgage and consumer loans.

"UAE banks will be taking a cautious approach," said Bikash Rout, senior financial analyst at Global Investment House.

"Looking at the current slowdown in the UAE, project delays, job insecurity... they will have to make high provisions."

Analysts in the Reuters survey predicted the fourth-quarter profits of Abu Dhabi Commercial Bank and National Bank of Abu Dhabi would fall seven percent and nine percent, respectively. Dubai Islamic Bank's profit probably fell 11 percent, they said.

Gulf governments have been struggling to keep their banks liquid and boost confidence after bourses in the region fell as much as 72 percent last year.

They have launched emergency funding facilities for banks and stock markets, slashed interest rates, guaranteed bank deposits and eased bank lending curbs.

The Saudi central bank has slashed its key lending rate by 300 basis points since October to spur private sector borrowing.

Banks in the kingdom are expected to post modest year-on-year profit growth in the fourth quarter. Al-Rajhi Bank, the largest publicly traded Saudi bank, probably saw fourth-quarter profit advance 2.5 percent, the survey showed.

Still, quarter on quarter, Saudi bank earnings are set for a 15 to 20-percent drop, said Hisham Tuffaha, head of investment research at Riyadh-based Bakheet Investment Group.

He said many Saudi banks that had hoped for a global market recovery in the fourth quarter would include "the brunt" of 2008 provisions for investment losses in the last three months.

"Interest rate cuts haven't helped optimism in the banking sector," Tuffaha said. "Banks feel the lack of liquidity and prefer to wait and see what will happen on the global markets." (Reuters)

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