Ratings agency says regional banks stable

Banks across the Middle East are financially stable, but bad loans and political uncertainty still weigh on some lenders, Fitch Ratings says.

Banks across the Middle East are financially stable, but bad loans and political uncertainty still weigh on some lenders, Fitch Ratings, one of the world's biggest credit ratings agencies, said yesterday.

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The outlook for next year was "generally stable" for banks, Fitch analysts said. But the ratings giant singled out the UAE's banks as some of the most stressed in the region.

Despite a gradual recovery in the Gulf's economic fortunes thanks to high oil prices and a tide of public spending on infrastructure development, bad loans in the country's banking system are still on the rise.

Provisioning by UAE banks for bad loans rose by 17.2 per cent to Dh51.9 billion (US$14.12bn) in the first 10 months of the year, according to Central Bank figures.

The health of loan books in the Gulf "is expected to recover, except for the UAE", the analysts wrote.

"Fitch believes that problem loans have peaked and expects recoveries and generally lower impairment charges in 2012," they said. Nonetheless, government spending is expected to provide a substantial boost for regional banks next year - especially in the Gulf. Banks benefit from public infrastructure spending mainly because they finance activities by companies that win contracts from governments to build roads, bridges, schools, hospitals and other projects.

"Most sovereigns in the region, especially in the GCC, are helping to stimulate their economies through government-sponsored infrastructure projects, taking advantage of their significant government revenue and sovereign wealth funds," Fitch said. "The oil price has remained above $100 per barrel, generating strong revenues, comfortably above budget requirements."

As worries about defaults subside in the region, Fitch said it expected profits to gradually improve. Some banks are expected to sell bonds as a means to diversify their sources of funding, Fitch said.

Loan growth is expected to tick upwards, and "viability ratings" may also be raised for some banks.

Those ratings "may be upgraded case by case as the banks recover from recent asset quality and profitability issues, although some UAE banks, in particular, may experience [viability rating] downgrades," Fitch said.

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