Banks in the Arab states are generally well capitalised and have taken sufficient provisions against bad debts, the Washington-based Institute of International Finance, or IIF, said in a report issued yesterday.
The IIF said that the financial crisis of 2008-2009 soured a large share of the loan portfolios of Arab banks, with non-performing loans particularly high in Kuwait and the United Arab Emirates at about 8% of their total loans. “Other financial soundness indicators, however, suggest that banking systems are generally well capitalised and that provisioning levels are satisfactory,” the IIF said. Capital adequacy ratios are in double-digits and provisions cover more than 80% of non-performing loans on average, the IIF added. The tight liquidity positions that undermined lending activity in recent years have eased, the report noted.
Nevertheless, some banks in the Gulf Co-operation Council states have been hoarding dollar deposits because of fears that the eurozone crisis might restrict their access to dollar liquidity, according to George Abed, the IIF’s senior counsellor and director for Africa and the Middle East, and the main author of the IIF report. The recent global shortage in dollar liquidity, especially in Europe, has pushed international banks with operations in the GCC to withdraw some of their liquidity to support their operations in Europe, “which affected the liquidity situation here somewhat, but I don’t think it is serious,” said Abed.
The IIF said it expects a reduction in oil prices next year will reduce the combined current account surpluses of oil exporting countries in the Middle East and North Africa to $180bn in 2012 from $317bn this year. But their external position of the oil exporting nations remains healthy, the IIF said. Continuing current surpluses will lift gross foreign assets in the region to about $2,000bn by the end of next year, compared with foreign liabilities of $500bn. Oil importing countries, in contrast, will face fiscal challenges and rising borrowing costs.
Zawya Dow Jones / Dubai