Flip through the latest issue of Gulf Weekly.
GCC banks have posted profits of $4.2 billion in the second quarter of this year and $8.7 billion for the first half of 2009.
Is the recession finally ending? Far from it; the 'balance-sheet recession is far from over,' says Bahrain-based Securities and Investment Company (Sico).
The uncertainty surrounding family-owned businesses has still not been resolved and litigation over bankruptcies has been increasing, Sico notes in a study.
In addition, banks' specific and general loan provisions continued to grow with the UAE experiencing a rise of 10 per cent month-on-month (MoM), or 27 per cent year-to-date (YTD), to Dh33.5 billion while Qatar saw an increase of six per cent MoM, or 46 per cent YTD, to QR2 billion.
June 2009 also saw the Saudi banking system extend its first new net loan since November 2008. But, a closer look at the statistics does not reveal a significant improvement in Saudi's credit extension.
While new net loans extended totalled SR4.1 billion in June 2009, this is barely 0.6 per cent of total loans against 2.6 per cent last year, representing a fall of an overwhelming 76 per cent year-on-year (YoY).
As a percentage of GDP, new net loans extended in mid-year represent a minor 0.14 per cent of GDP compared to one per cent of GDP in June last year.
"While Saudi banks will suffer from the 'base effect' this year, given the phenomenal growth witnessed last year, we still do not see this minor surge in loans, even if taken in absolute terms, as a major positive sign," Sico notes.
For a start, loan extension for one month is insufficient time-wise to justify it as a trigger for a positive trend, particularly as bank gross credit fell by 0.1 per cent quarter-on-quarter (QoQ) in June 2009.
Moreover, despite strong fundamentals with the Opec basket averaging more than $60 a barrel in the last quarter, overleveraged family corporates still pose a threat to the health and, more importantly perhaps, confidence in the Saudi private sector economy with foreign liabilities falling by 10 per cent MoM in June 2009, warns Sico.
Nevertheless, the Saudi Arabian Monetary Agency's (Sama) decision to reduce its reverse Repo rate (central bank deposit rate) to 25bps should be welcomed as it could moderate banks' appetite for hoarding cash with the central bank.
This policy, perhaps, is beginning to bear fruit as non-reserve deposits held at Sama declined by 20 per cent to SR70 billion marginally easing liquidity constraints. Despite a minor increase in loans, Saudi banking assets declined by 0.7 per cent MoM shadowed by Bahrain and the UAE which saw their assets fall by 2.2 per cent and 0.6 per cent MoM respectively during the same period.
Qatar, on the other hand, witnessed a 2.6 per cent MoM and 11.6 per cent YTD surge in banking assets. Having agreed to purchase real estate loans from commercial banks, the Qatari government paid by using a combination of cash and government bonds, as the latter witnessed an increase of 72 per cent MoM in June 2009 and 451 per cent YTD, significantly boosting Qatar's banks' asset quality.
The key findings of the Sico study include:
Money supply fell in June in Bahrain and Kuwait by 0.4 per cent and 0.1 per cent MoM respectively but increased by 1 per cent in Saudi Arabia and by 0.5 per cent in UAE during the same period.
Bank assets declined in Bahrain, Kuwait, Saudi Arabia and the UAE falling, MoM, by 2.2 per cent, 1.0 per cent, 0.7 per cent and 0.6 per cent respectively in June. Qatari banks' assets grew by 2.6 per cent MoM.
Qatar witnessed a surge in deposits which grew by 4.3 per cent MoM and six per cent YTD owing mostly to an increase in government deposits. Government local currency cash deposited at commercial banks saw an increase of six per cent MoM and 76 per cent YTD in June 2009 to QAR 11.2 billion.
Across GCC economies, inflation rates haves been declining since January 2009, and, with the exception of Saudi Arabia, falling due to a strengthened dollar YoY, falling food prices and, for the UAE at least, a drop in housing rent.
Bahrain saw a minor rise in inflation in June but the CPI index is still equal to the level in November of last year. It is difficult to fully assess Qatar's inflation levels given the change in the CPI's base year.
But the Gulf countries remain 'highly vulnerable' to commodity price volatility on international markets as they remain heavily dependent on imports, analysts say.
The forecast comes at a time when concern is rife that GCC countries may not be prepared for the global shock in commodity prices.
The GCC countries are indeed highly vulnerable to global soft commodity price volatility since they import almost all of their foodstuff needs. When the dollar, to which the region's currencies are pegged, is weakening, there is a compounding effect to this rise in domestic food prices since it makes all imports even pricier.
