Banks face another year of weak profits, loan defaults

Banks are in for another year of weak profits and high provisions for bad debts – including loans to two struggling Saudi conglomerates – before business picks up again, according to the chief executive of Mashreqbank.

“I think we probably still need next year for the banks to make some provisions for accounts,” Abdul Aziz al Ghurair, who is also speaker of the Federal National Council, said. “I think 2011 will probably be a good year when banks will be back and kicking.”Banks across the region have been grappling with a rise in bad loans since the onset of the financial crisis late last year, with virtually all lenders setting aside profits in the form of provisions to cover the rise. In the first half of this year, publicly listed banks in the region reported over $3 billion in provisions, far outstripping totals for last year.

Lenders have also been hit hard by defaults this summer at two Saudi family-owned conglomerates, the Saad Group and Ahmad Hamad Algosaibi and Brothers (AHAB). Those firms, which are estimated to owe tens of billions of dollars to over 100 banks in the GCC and abroad, are locked in a bitter dispute in which AHAB has alleged that Maan al Sanea, the billionaire founder of the Saad Group, defrauded it in an elaborate Ponzi scheme to the tune of $10bn.