However, the slowdown in the telecommunications, financial services and banking sectors failed to affect the overall first-half earnings of GCC corporates, which benefited from higher profits during the first quarter, according to the report by Kuwait Financial Centre (Markaz).

The year-on-year earning of GCC firms witnessed an increase of 13 percent to $22 billion, said the report, which based its findings on 75 percent visibility on trends in GCC corporate earnings.

Saudi Arabia remained the best performer with 25 percent and 42 percent growth in corporate earnings in the second quarter and the first quarter respectively.

The Kingdom's earnings received a boost from a recovery in the commodities sector, led by SABIC (Saudi Basic Industries Corp.) that reported income of $2.8 billion in first six months of 2010. However, the banking sector's profits contracted 10 percent in both the second quarter and first half of the year.

"This can be ascribed to the increase in loan loss provisioning, especially in the second quarter. One probable reason for this is exposure to Saad and Algosaibi groups, which defaulted on their $15.7 billion loans in late 2009. Both companies owed approximately $5 billion to Saudi banks," said the report.

UAE's earnings growth fell 36 percent in the second quarter and 12 percent in first six months of the year. Almost all sectors recorded year-on-year declines during the quarter, with the banking and telecommunications sectors proving to be major laggards.

"The country's banks witnessed higher provisions in the second quarter, led mainly by Emirates NBD and Abu Dhabi Commercial Bank. The banks' major concerns were exposures and impairments in Dubai World and the assets of related entities amidst tighter guidelines issued by the Central bank," said Markaz.

In Kuwait, Zain's quarterly earnings were boosted by a $2.65 billion profit from the sale of operations in Africa. Excluding these gains, Kuwait's corporate profits dropped 44 percent year on year due to dismal performance by most of the sectors.

"However, the Kuwaiti banking sector earnings continued rising, both during the quarter as well as the first half of 2010," said the report.

Qatar and Oman's earnings declined 19 percent and 20 percent respectively, marred by poor performances in non-banking sectors that dragged down earnings. Bahrain, however, managed to post a 29 percent year-on-year growth in its earnings.

"The banking sectors of Bahrain, Oman and Qatar posted annual growth of 40 percent, 39 percent and 15 percent respectively, during the quarter, confirming the recovery trend. Qatar's overall earnings declined mainly due to a drop in Industries Qatar's earnings," said the report.