Gulf International Bank on target to post a profit

BETTER TIMES: CEO of GIB optimistic about bank's future. (Getty Images)

Gulf International Bank (GIB), owned by the six Gulf Arab states, expects to post a profit this year after shareholders bailed it out by taking assets off its books, its chief executive said on Wednesday.

GIB sold asset-backed securities worth $4.8 billion to its shareholders, Yahya Alyahya said, in the latest sign Gulf banks have not avoided the global turmoil.

GIB's shareholders include Saudi Arabia, the United Arab Emirates and Qatar.

He said the assets, settled on March 27, included exposure to international securities severely hit by a global stock market rout.

Almost a quarter of these assets were rated AAA and about two thirds A- and above, Alyahya said.

In the third quarter the bank had written down losses related to investments in failed US investment bank Lehman Brothers.

"The fact that we have sold the securities portfolio really saves the bank from any future losses on securities," Alyahya told Reuters in an interview.

"The actual amount will depend on exchange rates on the day of settlement, it may be slightly less ... than $4.8 billion."

Banks across the oil-exporting Gulf have seen sharp declines in quarterly profits and some have made losses as the credit crisis hits their lending businesses.

One bank hit severely by the global crisis has been Kuwait's Gulf Bank, which had to be rescued by the government after posting steep losses related to trading in derivatives.

Bahrain-headquartered GIB, with assets of $25 billion, posted combined losses of $1.15 billion in 2007 and 2008.

"Going forward, I expect 2009 to end with a positive net profit," Alyahya said, declining to be more specific.

The Saudi Arabian Monetary Agency owns 37.6 percent of GIB, while the Saudi government holds 16.5 percent, according to its website. Bahrain, Oman and UAE own 7.2 percent each, while Kuwait and Qatar each hold 12.1 percent of the bank.

Alyahya said GIB's customer deposits have increased by about 10 percent since it announced the sale of the assets last week.

"We are able to get more funding from markets and clients, and are able to get funding at lower margins," he said.

As a wholesale bank, GIB's funding depends on the interbank lending market, where borrowing costs spiralled as global credit markets tightened late last year.

Alyahya said the bank is cautious entering new deals.

"We're not looking at new business per se, we have been monitoring what we have and are working with our existing clients," he said.

GIB plans to deleverage its balance sheet, targeting a loan-to-equity ratio of around 5 by the end of the year, from 6.7 at year-end, he added.

This would bring GIB's loan portfolio down to about $10.5 billion from $12.97 billion at year-end. (Reuters)

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