Low Oil Prices Enables GCC Banking Sector to Focus on Liquidity

Press Release

Saudi Arabia Banking Sector lending growth is close to 11 percent in 2014. The lending to private sector was above 11 percent, lending to government sector was above 7 percent and lending to non-financial public sector enterprises was close to 4 percent. The deposit growth was above 12 percent. The continuation of loan growth is expected to be curbed by the commencement of new consumer credit rules. New consumer lending rules include caps on fees around either 1 percent or SR5,000, whichever is lower, that banks may charge. Personal loan segment growth would depend on growth in expat population or salary increases.

21 & 29 Apr 2015 - CEO

Weaker loan growth, price competition, asset yield pressures, regulatory pressures on fee income could impact profitability. Loan growth of 7-9 percent expected in 2015.

In UAE declining oil revenue will slow bank deposit growth and impact credit growth in 2015.Loan growth was close to 10 percent in the first 11 months of 2014.Loan growth for the U.A.E. may be between 7- 9 percent in 2015.Growth in credit demand slowed in the fourth quarter as government-related entities and small- and medium-sized companies cut borrowing. Demand from industries including construction, property development and wholesale trade weakened. The property market will also peak in 2015.The new credit bureau will also regulate lending. Deposit growth in the system remained strong in 2014 as UAE government and public sector deposits rose in line with healthy oil revenue flows, while the banks further increased their allocations to liquid assets. Deposit growths will probably slowdown from around 11 per cent in 2014 to 8 per cent in 2015.

In Oman asset growth and lending growth was more than 11 percent in 2014. Deposit growth was close to 11 percent in 2014.Lending growth would be sustained in 2015 by higher spending on infrastructure projects, the government’s proposal to boost funding for development, as well as an increasingly vibrant consumer credit market. It is expected that loan growth will be between 8 -10 percent in 2015.

In Kuwait Lending growth came in at 6.2percent year-on-year in December 2014. Household debt growth eased slightly to 12.7percent. Credit to non-bank financials remained in deleveraging mode in 2014 with credit shrinking by 12.4percent.Credit to the trade sector performed modestly during the year, while credit to industry and construction saw a contraction in 2014. It is expected that loan growth of 2015 will be between 5-7 percent.

In Qatar Loan growth came in at 13.1percent in 2014 and asset growth at 10.5 percent. The lending for real estate sector, consumption sector, contracting sector and services sector was more than 11 percent, 23 percent, 30 percent and 21 percent respectively. The Foreign credit facilities were 24 percent of total facilities in Dec 2013 and marginally surged to 25 percent in Dec 2014. Real estate and Govt witnessed dropped in foreign credit however services sector picked up. Expected loan growth of 2015 will between 9-12 percent.

The WTI is at $49.76 / Barrel and Brent at $62.58/ Barrel by end of last week. Oil prices had rebounded since late January, partly due to expectations the lower rig count will eventually shrink U.S. production, curtailing the supply glut. Oil price also arose on account of Eurozone growth of 0.3 percent in last quarter of 2014. How it once again dropped this week on worries about oversupply in North America. The Low oil prices have enabled GCC banking sector to focus on liquidity. The fall in oil price will impact economic growth and impact liquidity in GCC economies. Liquidity in both the Government sector and private sector will be affected. Deposit mobilization will be challenging for Banking sector. Slow down can be witnessed in sectors such as real estate and projects. Lending to such sectors can be done on a selective basis. Banks need to understand how customer’s liquidity management changes in the light of changing dynamics in the market. Risk Management need to be strengthened. Consumer spending can also get affected on account of fall in sentiment. The fall in export trade could impact trade finance business. Rise in interest rates by Fed by mid or later this year and GCC monetary policy can also follow the same and tighten the liquidity here. Short term government deposits or major corporate deposits to be procured through relationships.