Gulf Cooperation Council nations’ banks will continue to face challenges with loan defaults because the six economies aren’t diversified and a few companies dominate many businesses, Moody’s Investors Service said.
The countries, which include Saudi Arabia and the United Arab Emirates, depend on oil and gas exports, which “magnifies the impact of economic cycles on banks,” analysts led by Khalid Howladar said in a report.
High oil prices from 2002 to 2008 boosted government spending to diversify the economies and spurred the growth of the construction and real- estate industries in these countries, the report said.
Going forward, the banks that will suffer most are the foreign banks operating particularly in the UAE. These banks have always been involved in trying to make a quick buck and lend at exorbitant rates to marginal borrowers. Their modus operandi is that at the first sign of delays in repayment by the borrowers, they arbitrarily raise interest rates and service fee thereby squeezing the borrowers further towards bankruptcy. This exactly what is happening in the UAE since mid 2008 and now it is the turn of the banks who are suffering with uncontrolled NPA's. It all comes down to greed.
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