Gulf banks Q1 provisions to fall, loan growth muted

Banks in the Gulf Arab region are expected to show signs of recovery on their balance sheets when they report first-quarter results, though lending is likely to remain muted. The regional banking sector was badly hit by the onset of the global financial crisis at the end of 2008, with lenders in the United Arab Emirates (UAE) hit by the country's battered real estate sector and loose lending policies. The result was tightening lending conditions and rising provisions for bad and doubtful debts, all of which dented profitability. But analysts say banks will book lower provisions in 2011. "I expect lower provisioning levels at Saudi Arabian and UAE banks, largely because the comparisons are good against the heavy provisioning in 2010," said Daniel Broby, chief investment officer at London asset manager Silk Invest. "Unfortunately, the loan books are still not growing, which is the flip side of the story. That said, top-line growth, although muted, will begin to come through." Among UAE banks, Dubai lender Emirates NBD the largest in the emirate by market value, will be of particular interest, with about 12.9 billion dirhams ($3.51 billion) of debt maturing in the next two years. Chief Executive Rick Pudner said in March the bank would set aside money in 2011 to cover bad loans but that the company was also ready to look at opportunities for expansion and partnerships. AE central bank data showed that although general provisions in February totalled a consistent 12.3 billion dirhams, specific provisions for non-performing loans continue to grow, hitting 45.8 billion dirhams in February, up from 44.3 billion dirhams in December. "Banks' Q1 will mainly depend on provisions, and the expectations are of lower provisions than 2010 which should give them better results," said Marwan Shurrab, head trader at Gulfmena Alternative Investments. "Expectations are of higher income and better debt to equity ratios." Saudi banks are likely to continue the rally of the fourth quarter. Central Bank Governor Muhammad al-Jasser said in January that lenders had taken enough measures against bad loans and lending would accelerate this year Most Saudi banks exceeded analysts' average net profit forecasts in the last quarter, among them HSBC affiliate SABB 1060.SE and Banque Saudi Fransi 1050.SE, part-owned by France's Calyon. Similarly, Qatar's banking sector -- which proved to be one of the most resilient in the region, helped by direct government support measures -- will be boosted by spending plans in the region's fastest-growing economy. "Based on a continuation of strong growth in the Qatari economy, the outlook for Qatari banks remains positive," said a sector note by Arqaam Capital. "The key drivers of earnings growth are increased volumes and asset-quality improvements." Qatar National Bank, the first regional bank to report quarterly earnings, posted a 34.8 percent jump in first-quarter profit on Wednesday on strong loan growth and a jump in fees and interest income.