ABU DHABI, 11 January 2007 — Commercial banks in the Gulf region have managed to weather the storm in most local stock markets in the past few months but their profits have been stifled, experts say.
In the United Arab Emirates, which has the second largest banking sector in the Arab world after Saudi Arabia, growth in the net profits of banks in 2006 is projected to be as low as 10 percent of the 2005 growth of nearly 100 percent. “UAE banks were undoubtedly affected by the stock market chaos last year but it was still a good year as they are expected to record 10-15 percent growth in their net earnings,” said economist Mohammed Asumi.
“Banks in the UAE and other Gulf states have managed to weather that (stock market) storm (because) many of them have diversified their investment instruments and (because of) the economic upsurge in 2006 due to high oil prices,” he told AFP.
Meanwhile, Saudi Arabia’s banking system is expected to register record profits in 2006 although the Kingdom’s stock market - the largest Arab financial market - was the worst hit in the region. But the pace of growth is expected to be narrower than in 2005.
Saudi banks netted around SR27.6 billion ($7.36 billion) in profits in the first nine months of 2006 compared to SR19.6 billion ($5.2 billion) in the same period of 2005, according to National Commercial Bank (NCB) data. “I expect them to make record profits of more than SR30 billion ($8 billion) in 2006 but the growth in such earnings is expected to be slower than in 2005,” Said Al-Shaikh, chief economist at NCB, told AFP.
“The performance could have been even slower but the bourse impact was offset by a surge in the banks’ income from securities abroad and corporate loans as there was a slowdown in consumer loan growth,” he added.
Qatar’s bourse was another market hit in 2006 but its banks reported a surge in profits of 36 percent in the first nine months of 2006 to 4.2 billion Qatari rials ($1.16 billion) from 3.08 billion rials ($846,000). Experts attributed this to the big leap in its economy and consequently a boom in lending.
Kuwaiti banks also netted much higher earnings in the first nine months of last year and are projected to achieve high growth rates through the year as the country’s bourse did not suffer as much as the Saudi and UAE markets. Net profits of nine Kuwaiti banks jumped 28 percent in the first nine months of 2006 to 993 million Kuwaiti dinars ($3.4 billion) from 775 million dinars ($2.7 billion).
In Bahrain, first-half bank profits leaped 36 percent to around 89 million Bahraini dinars ($237 million) while the earnings of Omani banks soared 26 percent to 97 million Omani rials ($252.7 million) in the first eight months of 2006.
Oman and Bahrain were exceptions in the oil-rich region, as their bourses maintained their upward trend and the banks were key beneficiaries, with their profits soaring by between 25 and 36 percent in the first nine months of 2006.