The collective non-performing loan provisions made by the 22 Gulf Cooperation Council (GCC) banks surged in the second quarter of 2012 after a decline in the previous quarter, stifling their net profits achieved mainly from higher interest income, Global Investment House (GIH) said in a study.

The provisions plunged by 46 percent in the first quarter compared with the previous quarter and by around five percent compared with the first quarter of 2011, it said.

"Provisions expenses saw resurgence during the second quarter… collective provisions for the GCC banking coverage jumped 10 percent YoY driven by Kuwait and Saudi Arabia. The UAE stood on the other end of the spectrum, as it was the only GCC country that witnessed a decline in provisions."
The report showed the banks under coverage saw "stagnancy" in profit growth YoY in the second quarter of 2012, adding that gains made by the net interest income were offset by higher provisions and operating expenses.


Net interest income grew by six percent YoY while provisions and operating expenses rose by 10 percent and seven percent YoY respectively.

"Balance sheet growth slowed down during the quarter and inched up by 0.4 percent QoQ for the collective GCC banking sector. Balance sheet shrinkage recorded by UAE banks had a strong impact on the sector but the effects were largely diluted by strong asset growth witnessed by Qatar."

Four banks in the UAE, the second largest Arab economy with the biggest banking sector, were the only banks to record a decline in loan loss provisions in the second quarter, the study said.

"Adjusting for one-off gains made by Abu Dhabi Commercial Bank (ADCB) in the second quarter of 2011 on the sale of a Malaysian associate, and also for extraordinarily high provisions taken by the bank then, we believe that the profits of our coverage improved by five percent YoY in the second quarter of 2012." The report showed the combined net interest income of covered banks grew by around six percent YoY in the second quarter and two percent QoQ.

It said growth rates were spread over a wide spectrum with Kuwait being on the lower end (one percent YoY) and Qatar on the higher (17 percent YoY).