By Andy Sambidge
Region's top banker calls for measures to be taken to help ease impact of global crisis.
The combined profits of Arab banks in 2009 will take up to a 40 percent hit due to continuing liquidity problems, the region's top banker has claimed.
Adnan Ahmed Yousuf, chairman of the Beirut-based Union of Arab Banks (UAB), urged local banks to take measures to deal with the global financial crisis, including admitting sovereign wealth funds (SWFs) and other long-term shareholders to strengthen financial base and regain investors' confidence.
He said Arab central banks should also take action to support commercial banks and ensure the flow of liquidity into local markets in comments published by the London-based Arabic language newspaper Al Hayat.
"Due to the global economic downturn and its downward impact on oil prices, shelving of some projects in the region, and a liquidity crunch, we expect the profits of Arab banks to decline by 20-40 per cent," he told the paper.
"Bank credit is projected to contract by 10-30 per cent during 2009 after surging by at least 60 per cent in the past few years...normally, any decline in interest rates by banks will spur credit activity but the problem is not only in the shortage of liquidity, but also in the more careful lending policies adopted by banks, at least during the first quarter of this year until the global situation becomes clearer. Liquidity is also affected by lower foreign capital flow."
Yousuf said in further comments published by Emirates Business that UAB would present proposals at the Arab economic summit in Kuwait on Jan. 19 to support the regional financial sector.
According to UAB data, Arab banks recorded strong performance in 2007, with their combined assets surging from $1,268 billion at the end of 2006 to a record $1,691 billion, an increase of about 33 percent.
The figures showed the UAE controlled the largest bank assets in the region at the end of 2007, with Saudi Arabia second.