Gulf Arab banks' loan losses to drop this year - Fitch

'Lower impairment charges and cost control should lead to a gradual improvement in profitability,' ratings agency says
Gulf Arab banks' loan losses to drop this year - Fitch
FITCH VIEW: Gulf Arab banks, including those in Saudi Arabia and the UAE, are likely to report lower loan and investment losses in 2011 (Getty Images)
By Bloomberg
Sun 23 Jan 2011 11:32 AM

Gulf
Arab banks, including those in Saudi Arabia and the UAE, are likely to report lower loan and investment losses in 2011
because impairments due to the global credit crisis have peaked, Fitch
Ratings said.

"Lower
impairment charges and cost control should lead to a gradual
improvement in profitability, but revenue growth will be more difficult
to achieve," the ratings agency said in an e- mailed report today.
"Loan growth has been generally low, as the banks remain cautious and
there is limited demand, but Fitch expects revenue to increase as
infrastructure projects come on stream, stimulating the local
economies."

Governments in
the six-nation Gulf Cooperation Council, which also includes Kuwait,
Qatar, Bahrain and Oman, are boosting spending on infrastructure
projects. Oil prices above $90 a barrel will support the spending
plans, Fitch said. The six GCC nations supply about a fifth of the
world’s oil.

Gulf Arab banks
were hurt after the credit crisis weakened lending and investment
banking, pushing up provisions for loan defaults and a decline in the
value of banks’ investments. The average non-performing loans to gross
loans ratio for the nine largest banks in the U.A.E. rose to 4.3
percent in 2009 from 1.7 percent at the end of 2008 as the economy
slowed, Fitch said in a report in June.

Most banks are
funded by customer deposits with little or no reliance on debt capital
markets, according to today’s report. There is significant liquidity in
most markets, although banks are increasingly likely to tap debt
markets as their loan books expand, Fitch said.

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