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Gulf Banks Recovering Despite Bad Debts, Investments Agency | ASHARQ AL-AWSAT English Archive 2005 -2017
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DUBAI (AFP) – Gulf banks have spent more than 20 billion dollars on provisions for bad debt and lost investments but are showing signs of returning to high profitability, Standard and Poor’s said Wednesday.

The rating agency said that the Gulf banks it rates have spent “more than 20 billion dollars (more than 15 billion euros) on loan loss provisions and investment impairments since 2008.”

But it said it believed those banks appeared to show “signs of improvement,” saying that the economies of the Gulf Cooperation Council (GCC) were starting to recover, thanks to high oil prices and government policies.

The GCC comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.

“We believe the asset quality of Gulf banks should improve from 2011 and that their good margins and efficiency will provide a solid foundation for their return to high profitability,” said Standard and Poor’s credit analyst Mohamed Damak.

But the agency added that challenges lay ahead.

“Improving liquidity, funding future growth, and refinancing the stock of existing debt are the next hurdles facing Gulf banks.”

The banks were slowly rebuilding their liquidity “to face upcoming maturities,” the statement said, also underscoring government “interventionist” policies in the banking sector as a safety net.

“We believe that these countries are highly likely to provide extraordinary support to their highly systemically important banks in case of need,” it added.

The agency also highlighted the strong capitalisation of the Gulf banks, saying that it calculated average risk-adjusted capital (RAC) for those banks at 10.2 percent before adjustments at year-end 2009, almost twice the average ratio for the world’s top 45 banks.

“This provides a sturdy shelter from unexpected shocks,” it said.

The agency had downgraded some Gulf banks over exposure to troubled borrowers that include debt-laden Dubai World and defaulted Saudi Saad and Algosaibi Groups.

Gulf banks were heavily affected by the global financial crisis, with many having to provision for bad loans while access to international finance dried up