Omani banks fare better in GCC region.
Almost all the UAE banks witnessed a high growth in provisions, led by Emirates National Bank of Dubai and Abu Dhabi Commercial Bank which were most affected by exposure to Dubai World and related entities, according to GCC banking sector quarterly survey published by the Global Investment House.
The case in Saudi Arabia was different with a majority of banks portraying an ease-off in provisions except for Saudi Basic Industry, SABB and RIBL. These banks have not indicated the reason behind the jump in provisions. These could be related to exposure to Sa'ad and Algosaibi.
Within Kuwait, banks in general saw a decline in provisions year-on-year, as second quarter of 2009 was a bad quarter in terms of high provisioning requirements coming from Sa'ad and Algosaibi; provisions also came from troubled investment companies. Furthermore, NBK seems to be the only Kuwaiti bank to have attained pre-crisis provisions levels while maintaining a high coverage ratio.
However, provisions of Kuwait Finance House and Gulf Bank stayed high; Gulf Bank's management, nevertheless stated that second half of 2010 will be much better in terms of provisions, hinting at a switch in provisioning regime.
The rise in aggregate provisions took a toll on aggregate earnings, eroding as much as 25 per cent of the total GCC banking profit. The effect was more profound in UAE banking aggregate where 41 per cent of the total income was lost to provisions; the second highest in at least the last 15 quarters.
The GCC banking sector is expected to show an increase in provision in the coming quarters, related mostly to those trickling in from UAE. Banks in the UAE are anticipated to tighten their belts in the wake of expected issuance of guidelines from the central bank related to exposure to Dubai World and related entities.
UAE banks' profitability
ADCB, one of the most exposed banks to Dubai World and related entities has already taken the hit in the second quarter, other banks are still to follow suit. Moreover, additional provisions are expected due to changes in the central bank's regulations.
While profitability of UAE banks in second half is expected to be lower than the first half, other countries to fare better, with easing off provisioning requirements.
Total earnings growth of the GCC banking sector came under considerable pressure owing to continuation of high provisions during the second quarter of the current year. While the top-line barely moved year-on-year, provisions grew by 5 per cent on year-on-year basis.
Provisions, mostly emanating from loan defaults, shifted gears during the quarter under review.
Muscat Press and Publishing House SAOC 2009
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