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Tue 12 Jan 2010 07:06 AM

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GCC banks book $9.4bn provisions in 2009 - study

Total provisions for 61 banks rise 40% on previous year, up five-fold on 2007.

Banks in the GCC made provisions totalling $9.4bn during 2009 amid the impact of the global downturn, new research has showed.

Total provisions for 61 banks in the region rose 40 percent, compared to 2008 and increased five-fold on the figure for 2007, prior to the worldwide crisis, a report published by the Kuwait Financial Centre (Markaz) revealed.

As a percentage of total loans, this translated to nearly 1.5 percent compared to just 0.58 percent seen between 2003-2007, Markaz added.

"The spike in some cases have been caused by specific events unrelated to the ongoing financial crisis (Gulf Bank, Kuwait and ABC, Bahrain). However, most of the story clearly points to “aggressive caution” on the part of banks to drive the bad news when the mood is gloomy," the report said.

Markaz also said that both loans and deposits, which had enjoyed robust growth levels up until the fourth quarter of 2008, "took a nasty turn in 2009".

The analysis showed that overall loan growth ran at just 4 percent weakly supported by a deposit growth of 3 percent.

"We expect a slight pick up in 2010, but no where near the historical average. Clearly, 2010 will be a year of recovery and learning," the report said.

Markaz added that figures for the first nine months of 2009 showed that provisions increased "almost without exception across GCC banks".

"By far the most volatile has been the UAE, following the announcement of debt woes at the two Saudi conglomerates, Saad and Algosaibi Groups, which UAE banks are believed to have a significant amount of exposure to (estimated at over $2bn)," said the report.

Markaz said it expected UAE provisions to increase to $4.8bn in 2010, "especially should lending continue to be tight while banks continue to guard against defaults".

"We expect GCC provisions to end 2010 at $8.76bn, representing a 7 percent decline over our full year 2009," it said, adding that it also saw loans growth in 2010 at about eight percent.

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