2005 banking report: strong regional economy sees banking profits soar.
The Middle East › Nbr. 2005, January 2005
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BUSINESS & FINANCE - Cover Story
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2005 banking report: strong regional economy sees banking profits soar.
After an exceptional year in 2004, which saw rapid growth in profits and assets, most financial services institutions--led by the major Gulf banks --expect to record even higher earnings this year thanks to unprecedented expansion in the retail and corporate sectors. The exploding oil revenues are significant but not the only factor underpinning the financial industry.
ENCOURAGINGLY, THIS BOOM IS led by the private sector, unlike in the past where banks were over-reliant on highly cyclical government-supported infrastructure finance and deposits. Therefore, the income sources of many banks are now more diversified, which bodes well for sustained robust growth in the years ahead. As a rough indicator, each $1 per barrel hike in oil prices boosts the incomes of Middle East governments by an extra $6bn, consequently the major Arab Organisation of the Petroleum Exporting Countries (OPEC) markets are awash with surplus liquidity. Private business also benefits from the vibrant economies and increased capital investments, with banks happy to lend to corporate clients, especially in the real estate and construction sectors. More than $100bn could be invested on basic infrastructure and utilities this year in the Gulf. The head of research at the Dubai-based investment house SHUAA Capital, Walid Shihabi, notes: "The region is witnessing massive growth in financial assets and real estate prices amid a windfall of liquidity on the back of record-high oil prices." "The Gulf Cooperation Council (GCC) countries are in the midst of a period of exceptional economic performance," reports the International Institute of Finance (IIF), a US-based association of private banks. It predicts economic growth of nearly 25% in 2005 for the six-member GCC-bloc, comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE. Soaring oil revenues--$291bn this year--should underpin a record high current-account surplus for the GCC-region of $180bn, equivalent to 30% of GDP. Moreov...See the full content of this document
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