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Sun 25 Jan 2009 05:20 PM

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2009 will be ‘far worse’ for GCC banks - analyst

Kuwait Financial Centre expects banks' profitability to fall sharply as economic conditions deteriorate.

Banking profitability in the region will fall sharply in 2009 as the global economy continues to deteriorate rapidly, the Kuwait Financial Centre (Markaz) said on Sunday.

The banking sector is likely to experience a contraction in deposits and loans, as well rising numbers of defaults on loans, causing a deterioration in asset quality, Mandagolathur Raghu, senior vice president of research at Markaz, told Arabian Business.

“2009 is going to be a far, far nastier year as far as banking is concerned,” Raghu said.

UAE banks would be hardest hit, due to their particularly high exposure to real estate and stock markets, he added.

Last month Moody’s downgraded its outlook for four UAE banks as a result of their exposure to these sectors and tightening liquidity.

Raghu said he anticipated further downgrades.

“The sectors to which banks have been aggressively lending, for example real estate and stock markets, are in the doldrums, so they will definitely stop giving money to these two sectors.”

An increasing number of defaults on personal loans are also to be expected, he added.

Income from charging interest - a primary source of any bank's income - would dry up, as liquidity remained under pressure and lending slowed, Raghu explained.

“The fee income will also be severely impacted, again because of the stock markets, lack of IPOs, lack of mergers and acquisitions, and lack of project finance,” he said. Negative conditions are likely to persist for the rest of the year and would only start to ease once governments introduced specific measures to tackle the crisis, he said.

“We know that central banks are under enormous pressure to ease the burden of the banks. It’s not an easy process to kick-start," Raghu said.

"It may take some amount of negotiations back and forth between banks and central banks and that may well be into the first half of the year, by which time enough contraction of the balance sheets will have already happened in my view,” he concluded.

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Martin 11 years ago

If UAE banks are most exposed, how long before we will start to see the kind of redundancies seen in construction?

ramy 11 years ago

UAE banks must experience the same pain of Construction sector, because banks caused the problems we are facing right now, as banks lending money for off plan projects which i see it is against the common sence besides lending money to any one regardless how big his income as well as financing properties up to 90% to residents and non residents ..... it is shamful the way here

mickey 11 years ago

at last a clear and correct analysis of the stae of the financial institutions in the middle east. I just hope that Mr. raghu's view that goverments are doing something about this is true..as the official line still remains optimistic as if there are no concerns.

Sally 11 years ago

these were the same analysts who predicted growths unprecedented for the regional banks and now when the things have started rottening they are coming up wid doomsday predictions. couldn't these analysts see this even in 2QFY08 when they were issuing higher and higher upside potentials for the UAE banking stocks???

pritesh 11 years ago

bad news - people and companies in the region are waiting for the major 'bounce-back'. Well - there is not going to be one. The markets will head south until they reach the correct point - and then reset and we will all start from there. Look at the soft commodities markets H2 of last year. it fell like a stone, found the bottom and only in last few weeks has it started trickling up. good news - this is cyclical, and on avaerage these cycles are around 5 years. Coincidentally, the average memory span of a banker is also 5 years (surprise, surprise). So, it's only a matter of a few years until the current times are shoved into history to be reviewed as part of future MBA's - and the greed and need for immediate self gratficiation returns !