Saudi in front on GCC credit growth - expert

Although private sector lending in the near future will remain muted in the UAE, Saudi Arabia is likely to witness a return to credit growth much sooner, one of the region’s leading economists has said.

“We’ve already seen a pick-up in private sector lending in Saudi Arabia so far in 2010, and that will continue to accelerate until the end of the year, so that’s a positive story,” Farouk Soussa, Citi’s chief economist for the Middle East, told Arabian Business.

“In the UAE, the prospects for private sector lending are still limited by constraints on banking liquidity and uncertainty regarding asset quality.”

Soussa said that in order for UAE banks to raise long-term funds, they needed to combat an international perception that toxic debt is still extant on Gulf banks’ balance sheets.

“There’s very little understanding of exactly what the safe quality of assets is on balance sheets, and until we get over that central question, until there is an opening and cleaning out of the books, credit growth is going to remain disappointing,” he added.

The economist argued that while credit growth towards government entities in the public sector would remain strong, private sector lending would remain stagnant.

However, Soussa welcomed the increasing provisioning levels, although he warned that banks needed to be more proactive.

“It’s one thing to be well-capitalised, which they are, but you need to demonstrate that you have addressed the issues that investors suspect you may have,” Soussa said.

“Until you do that, you aren’t going to be able to get the funding in place, until you have the funding, you aren’t going to be able to lend. So that’s the issue with the UAE banking system.”