Gulf bank balance sheets outpace GDP growth

Dubai: The bank balance sheets in the Gulf region are growing in excess of 20 per cent, more than double the rate of nominal GDP growth, leading to strong revenue growth for banks, according EFG Hermes, a regional investment bank.

"We believe that banks in this region provide exposure to growth that is in some cases almost entirely de-linked from the slowing global economy, and is only partly reflected in valuations today," the report said.

Momentum in economic reforms and the boom in the Gulf Co-operation Council (GCC) have provided impetus for recent strong performance of other regional economies, which has helped the balance sheet growth of regional banks.

While favourable demographics provide a substantial long-term growth opportunity for their respective banking sectors. UAE, Qatar and Kuwait are characterised by small but fast growing populations, the vast majority of expatriates, and a high hydrocarbon endowment per capita.

In Qatar and the UAE, growth in the banking sector is significantly driven by the aggressive economic diversification effort. In Saudi Arabia, the focus is also on diversification but more to provide employment opportunities to its large national population.

From a short-term perspective, EFG Hermes analysts view loan growth in the GCC is being further boosted by sharply falling dollar rates, as GCC currencies, except Kuwait, are pegged to the dollar.