Credit shortage blamed for slow growth

During the boom credit growth in the Gulf soared to unprecedented levels and there was much talk of banks having to adapt their lending practices. Financial institutions, analysts said, needed to focus more on risk management and shift away from “name lending”, which saw money flow into family businesses and government-affiliated entities with too little oversight. In many people’s eyes, the banks were partly culpable for the excesses that have made the Gulf’s downturn more painful.

Now as regional officials talk up prospects of recovery, it is a lack of lending that is acting as a constraint on the pace of growth, economists say.

“I’m concerned that at the moment many corporates I talk to, even rock solid ones, are saying ‘I still can’t get any working capital,’ ” says an analyst at an international bank. “It [the credit squeeze] has already lasted longer than I anticipated.”