JEDDAH - The economies of the six-member Gulf Cooperation Council are forecast to post growth, with their banks expected to perform better this year amid steady high oil prices, the Kuwait-based Global Investment House (GIH) said in a study on Tuesday.
“Starting 2010, the major question that lingers in the minds of investors is whether the worst is over? We believe that the GCC banks collectively have already seen the worst and 2010 will be a year of asset and profit consolidation before the banks embark on a steeper profitability trajectory in the years ahead,” the study said.
GCC banks are projected to turn around and register a 15 percent growth in 2010 earnings.
It forecast that the net income of GCC banks is anticipated to grow by around seven percent in 2010 over the previous year.
“We believe that earnings growth will pick up pace further down the road managing a 2009-2012 CAGR of 20 percent,” GIH said.
The report noted that provisioning expenses of GCC banks jumped by nearly 64 percent in 2009, underpinning the forecast decline in annual profits.
However, though “GCC banks are still to feel the spillage of credit deterioration,” it would be lesser than in 2009, “with collective provisioning requirements estimated to decline by 16 percent,” the study said.
“The provisioning charge (provision expense as a ratio of total income) is therefore expected to subside to 18 percent in 2010 and to 10 percent in 2012 after making a high of 23 percent in 2009, “ adding that “the NPLs ratio of GCC banks will stand at 3.1 percent in 2009 and increase by 31bps in 2010 before sliding down by an average of 20bps till 2012.”
The study pointed out that Qatar and UAE banks have an edge.
“Interestingly, we believe that UAE banks enjoy the same stance as Qatari banks, despite the fact that they suffer from high exposure to defaulting conglomerates, high retail default and bottoming real estate prices. This is because these negatives are offset by good and steady spreads, healthy top-line and bottom-line growth expectations and due to the simple fact that UAE banks in general and Abu Dhabi banks in particular enjoy government patronage,” the report said.
Moreover, GIH forecast GDP growth of around 2.4 percent in the UAE, 3.8 percent in Oman, 3.7 percent in Bahrain, 3.3 percent in Bahrain, and three percent in Saudi Arabia. Qatar’s economy would catapult by 18.5 percent triggered by huge LNG ventures.
In Saudi Arabia, higher oil prices and a forecast budget surplus of SR107.7 billion would boost development projects and spur growth, the report said.
Overall projects in the Kingdom are estimated at around $615.3 billion as of December 2009, with merely 8.5 percent are on hold. But as the Kingdom’s economy grows, the number of projects on hold is expected to drop to a half and enhance performance of petrochemical, banking and manufacturing sector, GIH suggested.
Meanwhile, Qatar is estimated to post highest GDP growth among the GCC countries at 18.5 percent in 2010.
In Oman, “total projects are estimated at around $104 billion, of which only $6.5 billion or 6.2 percent are on hold. Banking and construction sectors are likely to be major beneficiary.” – QJM