Higher energy prices and increased hydrocarbons production have provided for large public spending programs, which have increased the asset growth of GCC banks by 11 per cent in 2012 to reach $1.47 trillion, a report said.

Overall asset gains were helped by a pickup in construction and real estate activities, added the report released by Qatar National Bank (QNB).

Credit facilities form the largest component of overall GCC banking sector assets and accounted for 58 per cent of overall assets in 2012. They alone grew by 14 per cent in 2012 to $859 billion, the report said.

The GCC banking sector is characterised by a high concentration of local banks. The top 20 GCC banks made up 66 per cent of overall banking sector assets in 2012. QNB is the largest bank in the GCC with assets at $101 billion as at year-end 2012.

Among the GCC countries, Qatar, which accounted for 15 per cent of total GCC banking assets in 2012, stood at the forefront of growth. Credit facilities increased by 26 per cent in 2012, pushing up banking sector assets by 18 per cent. The public sector has been the key contributor to credit growth in Qatar.

Credit facilities to the public sector increased by an average of 43 per cent over the past three years, which can mainly be attributed to bank financed public spending on infrastructure projects. The real estate and construction sector was the second largest recipient of credit facilities in Qatar and grew by 10.5 per cent in 2012 as growth in those sectors picked up.

The UAE has the largest banking sector in the region, accounting for 33 per cent of overall GCC banking assets, with total assets at $489 billion as at November 2012. Credit facilities went up by 12 per cent in 2012, supporting the expansion in total banking assets by 8 per cent in 2012.

According to the QNB report, loans to the construction sector form the largest portion of credit facilities in the UAE and after declining in 2010-11, started to pick up in 2012. Additionally, credit facilities to other major sectors, such as the public sector and wholesale trade, also increased in 2012.

Saudi Arabia has the second largest banking assets in the GCC at $462 billion.  Credit facilities went up by 17 per cent in 2012 as loans for trade and manufacturing grew.

Kuwait’s credit facilities grew a slow pace of 4 per cent in 2012, driven mainly by the increase in loans to the construction and real estate sector. Oman experienced strong growth in bank financing which went up by 14 per cent in 2012 as personal and public sector loans increased.

The banking systems in the GCC region have remained relatively sound even with strong growth in the balance sheet of banks.  This is mainly due to the good asset quality of GCC banks as the non-performing loans (NPL) ratio has remained low for the GCC region. The NPL ratio for GCC banks stood at 4.5 per cent for 2012, based on Bloomberg data.

Apart from traditional bank financing, corporate debt capital markets have also emerged as a good funding option for governments and corporates in the region. While bank financing has traditionally been the preferred source of funding for GCC government and institutional borrowers, they have in recent years started to diversify their funding sources, through access to the capital/bond market.

In 2012, a total of 919 bonds were issued in the GCC amounting to $111 billion, according to data from Bloomberg. This is in comparison to the $107 billion in credit facilities that were granted by GCC banks. Even as bonds have emerged as an alternative, bank financing will remain as the primary source of funding for institutional and corporate borrowers, according to QNB Group. – TradeArabia News Service