The UAE banks have the largest share of banking assets in the GCC that rose by 8.9 per cent in 2011 to $ 1.46 trillion, equivalent to 106 per cent of regional gross domestic product, or GDP.

The UAE banks account for 31 per cent of the total assets in the GCC, a report by QNB Group said. Saudi Arabia’s banking sector is in second place, with 28 per cent of GCC assets, but it is the smallest in relative terms, at around 71 per cent of GDP, the report said.

The report observed that the UAE has the highest level of domestic loan penetration, 78 per cent of GDP, primarily as a result of extensive lending to the real estate sector. Saudi Arabia has the lowest, at 40 per cent of GDP, but this may increase when a long-awaited law reforming mortgage financing is implemented and boosts access to credit.

Analysis of the GCC banking sector performed by QNB Group concludes that the region’s banking sector’s prospects are stable and banks are expected to be remain profitable and that the sector itself has room for growth.

The report said that the GCC banking assets have been growing strongly in recent years, except for a slow period in 2009, at a compound annual growth rate of 7.5 per cent from 2007-11. This growth in banking assets is a consequence of the region’s economic boom, driven by high oil prices.

A recent report by the National Bank of Kuwait, NBK, endorses this view, forecasting that GCC banks would perform better this year because of high public spending and an increase in lending.

For banks in GCC countries, 2011 was a better year than the one before. Bank profits continued to improve and assets growth was healthy, NBK said in its report.

“In the current global context, the region’s economic growth is relatively good, with governments at various stages of implementing ambitious capital spending plans to boost economic growth and funding is plentiful. However, some regional banks continued to deal with the after-effects of the 2008 global financial crisis, particularly on their asset quality,” it said. According to QNB report, in terms of profitability, the combined net profit of the ten top GCC banks increased by 18.1 per cent in 2011, to $ 12.3 billion. QNB Group led the pack, with profit growth of 32 per cent to $ 2.1 billion.

The GCC’s banking sector is in a good position to support the ongoing development of the region. Strong GDP growth, which QNB Group forecasts will average 4.6 percent in real terms for the GCC in 2012-13, will increase the demand for bank financing across the economy. As a result, regional banking assets are expected to continue to grow strongly. At the same time, conservative banking policies will ensure that the banks remain stable through this period of growth.

The report said Qatar’s banking sector saw the most rapid increase in assets during 2011, growing by 22.3 per cent. It looks set to move ahead of Bahrain (an offshore financing hub) to take third place in the region by asset size, having previously overtaken Kuwait in 2010.

Domestic banks hold the majority of assets in each country, with the exception of Bahrain where foreign banks hold 57 per cent. For the region as a whole, domestic banks in their home countries hold 83 percent of assets.

Loans as a share of GDP in the GCC rose to 56 per cent in 2011, but this is low compared to countries like the UK where loans are 153 per cent of GDP.

This largely explains the GCC’s fairly low share of overall banking assets relative to GDP. There is therefore space for an increase in the loan penetration rates in the GCC, the report said.