Zawya Dow Jones /Dubai
Arab banks in the oil-rich Gulf continue to operate in the shadow of provisions, setting aside $3.5bn so far this year against bad loans. The provisioning is triple the figure from a year ago, data from Zawya.com shows.
Bankers expect further set asides to protect against faster growth in non-performing loans that may still hit banks in the final quarter.
“We may see some extra provisions in the fourth quarter but most banks will come clean by early 2010,” said Adnan Ahmed Yousef, president of Union of Arab Banks.
Saudi Arabia’s Al Rajhi Bank, the region’s largest lender by market value, booked more than $333mn of provisions in the first nine months. Emirates NBD, the largest regional lender by assets, set aside $552mn during the same period, the Zawya.com data shows.
The top-20 Gulf banks posted lower profits for the third quarter partly due to bad loans as rising expatriate unemployment and corporate defaults weighed on earnings.
Exposure to troubled Saudi conglomerates Saad Group and Ahmad Hamad Al Gosaibi & Brothers also hit earnings.
A total of 30 Gulf banks have almost $10bn worth of exposure to the two privately held Saudi conglomerates, according to figures from ratings agency Standard & Poor’s released in July.
Kuwait Finance House and Mashreqbank were among the worse hit, taking $478.2mn and $375.4mn respectively.
SABB, HSBC Holdings’ Saudi affiliate, booked $93.7mn in provisions for loan losses during the third quarter, bringing its total provisions made over the nine months to end-September to $208.6mn, according to Zawya.com data.
Alaa Eraiqat, chief executive of Abu Dhabi Commercial Bank, the emirate’s third largest lender by assets which made $339mn in provisions in nine months this year, said he can’t rule out the possibility of more impairment charges in the coming quarter.
“The year is not over,” he told Zawya Dow Jones in a recent interview. “We continue to be prudent and continue to take provisions this year considering the market situation and our exposure to the Saudi groups.”
Some banks saw their entire profits gobbled up by provisions. Gulf Bank used all of its $147.1mn of operating profit from the third quarter on provisions.
The Kuwaiti lender’s chief executive Michel Accad said the bank may take “further precautionary provisions if the general economic situation fails to improve. This may necessitate utilising our operating profits up to the first half of next year to cover our provisioning requirements.”
Accad’s pessimistic outlook for 2010 could spread to other Gulf lenders.
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