Comment: Gulf must navigate a bumpy road

* username: rupertbu

This year may prove to be another tough one for Middle East banks, with rising non-performing loans restricting their willingness and ability to extend credit.

Despite ample capital and liquidity, lending declined last year and is expected to remain subdued in 2010. Bank profits dropped 10 per cent last year and now stand on a par with 2005, a time when the banking system’s asset and equity base was about half the present level.

Overexposure to property and highly leveraged companies has eroded asset quality. Provisions jumped fivefold from their 2007 level. The crucial factor driving credit quality this year will be the ability of companies to improve liquidity and extend debt maturity profiles.