Is There a Silver Lining to Sluggish Credit Growth in the Gulf Countries?


By Masood Ahmed

(Version in عربي )

Bank credit has been very slow to pickup in the six nations of the Gulf Cooperation Council (GCC). How big a problem is this for their economic recovery?

Sluggish credit growth in the post-crisis period was hardly a unique development, as indicated in our latest Regional Economic Outlook. More than a dozen countries in the Middle East and Central Asia region, and countless more outside the region, shared this experience. But while there are clearer signs of recovery in some countries, credit to the private sector is still barely growing in the GCC, notwithstanding policy efforts to revive it.

It might seem easy to ring the alarm bells. After all, won’t the prospect of weak credit growth restrain economic activity in the short-term? Perhaps. But we believe the negative impact of credit growth may not be quite so severe.

Why not? In part, that answer lies in how we arrived at the current situation. Continue reading

Did Islamic Banks in the Gulf Do Better Than Conventional Ones in the Crisis?


By Masood Ahmed

The IMF’s latest regional economic outlook for the Middle East compares the performance of Islamic banks in the countries of the Gulf Cooperation Council (GCC) with conventional ones during the global financial crisis.

Islamic banks were less affected during the initial phase of the crisis, reflecting a stronger first-round impact on conventional banks through mark-to-market valuations on securities in 2008. But, in 2009, data for the first half of the year indicate somewhat larger declines in profitability for Islamic banks, revealing the second-round effect of the crisis on the real economy, especially real estate.  

Going forward, Islamic banks overall are better poised to withstand additional stress, according to the IMF analysis.

Portfolio risk

Islamic banks have grown substantially in recent years, with their assets currently estimated at close to $850 billion. Overall, the risk profile of Islamic banks is similar to conventional banks in that the risk profile of Shariah-compliant contracts is largely similar to that in conventional contracts, and credit risk is the main risk for both types of banks.

Islamic banks are not permitted to have any direct exposure to financial derivatives or conventional financial institutions’ securities—which were hit most during the global crisis (photo: Karim Sahib/AFP/Getty Images)

Islamic banks are not permitted to have any direct exposure to financial derivatives or conventional financial institutions’ securities—which were hit most during the global crisis (photo: Karim Sahib/AFP/Getty Images)

Unlike conventional banks, however, Islamic banks are not permitted to have any direct exposure to financial derivatives or conventional financial institutions’ securities—which were hit most during the global crisis.

Continue reading

Follow

Get every new post delivered to your Inbox.

Join 807 other followers

%d bloggers like this: