Changing paradigm in GCC banking

By Dr R Seetharaman

In Saudi Arabia, lending to the public sector constituted 4% of the total lending and remaining to the private sector. Lending to the private sector grew by 12% in 2013 and lending to the public sector by more than 11% in 2013. In Saudi Arabia, investment in private securities constitute 17% of total investments. It had grown by 22% in 2013 and investment in government securities had grown by 26% in 2013. The deposit base has also grew by more than 11% in 2013.

The loan book of Saudi banks is expected to grow at pace of 12% in 2014. The increased proportion of younger population in Saudi Arabia can result in demand for personal financing to grow robustly.

In the UAE, bank lending grew by more than 7% in 2013. The UAE’s bank deposits rose by more than 9% in 2013. The UAE’s banking sector indicates strong loan growth led by retail and consumer banking and improved profitability on account of sustained decline in non-performing loans and improving economic conditions. Sectors such as tourism and corporate services are performing strongly, particularly in Dubai, and a strong rebound in real estate prices has improved the loan demand.

UAE bank lending in 2014 can exceed 9%. Residential deposits are also expected to pick up in 2014 and will be the key driver of overall deposits. Mortgage uptake will be moderate after the new mortgage rules.

However as consumer confidence has improved and people are more open to spending and taking more risks. The UAE’s Al Etihad Credit Bureau (AECB) is expected to be started in 2014 which will make easy for banks to assess the credit-worthiness of a prospective client.

In Oman, lending growth was more than 6% and deposit growth more than 10% in 2013. Lending slowed in 2013 mainly due to changes in norms and the lending structure of personal loans and lower growth in demand for project financing. However in 2014 lending is expected to improve in Oman and can even reach 10%.

In Kuwait lending growth was more than 8% in 2013, with trade and construction sectors contributing to the growth. Deposit growth was more than 9% in 2013. Kuwait bank lending is expected to pick up in 2014 after investment firms cut debt and government implements projects. The credit growth can exceed 9% in 2014.

In 2013, the Credit Information Network of Kuwait (Ci-Net) appointed Dun & Bradstreet to develop and implement a new credit bureau system which will enable more individuals, banks and companies to access credit easily.

In Bahrain further consolidation is expected this year after a spree of tie-ups in 2013, and the Central Bank of Bahrain has encouraged Islamic banks to get credit ratings to improve transparency. The central bank has also encouraged smaller lenders to merge to bolster institutions weakened by a local real estate crash and fall-out from the political unrest in 2011.

National Bank of Bahrain and a local pension fund had bought 51.6% stake in Bahrain Islamic Bank in March 2013, while a share-swap agreement between Al Salam Bank and BMI Bank was completed in Feb 2014.

In Qatar, lending growth was more than 13% in 2013. The main sectors which contribute to Qatar’s lending growth include government sector, contract sector and retail sector registering a credit growth of more than 9%, 12% and 40% respectively in 2013.

Qatar’s banking system remains profitable with a return on assets at 2%. Liquidity buffers are strong, with liquid assets around 50% of total assets. Commercial banks’ Tier 1 capital stood at 15% of risk-weighted assets at end-2013 and NPLs remained below 2%. Foreign funding of commercial banks which increased substantially in recent years has come down from 30% of total liabilities at its peak in early 2012 to about 23% by end of 2013. Its maturity structure has improved, with short-term loans gradually replaced by longer-term Securities.

The Qatar Central Bank has also come out with guidelines for implementing capital adequacy and liquidity under Basel III in 2014 and Qatari banks will adhere to it. According to QCB data, total value of cheques cleared grew by 36% to QR298bn at the end of 2013 from QR218bn at the end of 2009. The usage of cheques in Qatar is expected to go further up in the coming years as the government is pushing companies to pay to workers electronically. The banks are also encouraging customers to use more cheques and less cash because it reduces the cost for them.

*Dr R Seetharaman is Group CEO of Doha Bank. The views expressed are his own.