Dubai: Restoring confidence in the Gulf region's banking system and ensuring the resumption of lending activity will be a high priority for central bankers when they meet in Kuwait City Tuesday.

Central bank governors from Saudi Arabia, the UAE, Kuwait, Qatar, Bahrain and Oman are also likely to discuss banking supervision methods during their one-day get together, a person familiar with the meeting said.

"Transparency is essential for long term stability and growth of credit markets," said Mohamed Jaber, an analyst at Morgan Stanley in Dubai.

Jaber said authorities could play a critical role in encouraging greater transparency from companies, which would go some way to easing banks' concerns about credit worthiness.

Paul Gamble, head of research at Jadwa Investment in Saudi Arabia, said: "Credit growth will normalise by the second half of 2010 for the region. But going forward, it will be a new normal of about 15 per cent growth, not the 30-40 per cent credit growth we've seen in previous years."

In January, Saudi government data showed bank lending to the private sector grew just 0.8 per cent year-on-year, compared with double digit percentage rises in recent years.

Loans

Loans and advances in the UAE grew only 2.6 per cent year-on-year in February, compared with double-digit jumps of about 50 per cent in 2008, according to the IMF.

"The region's banks are well-capitalised and liquid and I expect that they will restart lending this year," said Simon Williams, chief economist at HSBC Middle East.

"But the problems of the last couple of years have exposed the limits of their risk management systems and the write-downs have damaged confidence which will lead to them being cautious for some time to come," he added.

Last year, Saudi Arabia's Saad and Algosaibi groups defaulted on several debt obligations. International and regional banks cold have about $20 billion in exposure to the two groups, according to some analyst estimates.

Depressed lending levels will likely lead to a more muted level of economic growth this year compared with previous years with expansion in the low-to-mid single digit levels, said economists.

The International Monetary Fund said economic growth in the region during 2008 was 7.1 per cent.

Jadwa expects the six economies of the Gulf Cooperation Council region to grow by about 4 per cent this year.