Bank lending growth in Kuwait and Oman slowed to multi-year lows, central bank data showed on Sunday, in the latest signal that difficult economic conditions had drawn a regional credit boom to a close.
Bank lending doubled between 2007 and 2008 in Oman and in the four years to the end of 2008 in Kuwait as banks rode a wave of economic growth spurred by a rise in the price of oil to record levels of almost $150 a barrel last summer.
Growth in Kuwaiti bank loans to the private sector eased to 11 percent in the year to April, the slowest pace in almost five years, while at 29.7 percent, annual growth in total Omani bank credit was the slowest since October 2007.
Banks in the Gulf region have become more cautious about giving new loans during an economic downturn that is likely to see some Gulf economies, including Kuwait's, shrink in 2009.
"Across the region, the surge in lending to the private sector that accompanied the boom in oil prices has lost momentum and in some cases is in reverse," said Simon Williams, a regional economist at HSBC in Dubai. "Even where liquidity is quite good, the banks' appetite for risk seems subdued, and private sector demand for credit looks weak, despite cuts in interest rates."
Gulf central banks and governments have taken a number of measures to improve banking sector liquidity and encourage banks to lend. Kuwaiti bank credit facilities to residents fell in April from March the first month-on-month drop in almost five years.
Credit facilities to residents stood at 24.09 billion dinars ($83.21 billion) on April 30 compared with 24.18 billion dinars a month earlier, the central bank said in a monthly bulletin. "I think its inevitable that this will weigh on consumption growth and private investment over this year," Williams said.
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As oil tumbled off 2008 peaks to the mid-$30/bbl range this year, Gulf governments pledged to keep public spending high to support their economies through the downturn.
Banks, meanwhile, have taken provisions to guard against an expected rise in bad loans as regional property and equity markets faced sharp slowdowns. Bank lending has declined in Saudi Arabia and Bahrain.
The IMF said last week that the economies of Saudi Arabia, the UAE and Kuwait - the three biggest in the Gulf - would contract this year, while growth would slow in Oman and Bahrain.
In Oman, total credit of commercial banks grew 2.1 percent in the first three months of 2009 compared with the end of last year, the central bank said in a quarterly bulletin. That was the slowest quarterly growth since the second quarter of 2005, as credit to public enterprises eased 2.8 percent and loans to the government fell 26.2 percent.