## _wp1087

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### I. Introduction — purpose, strengths, vulnerabilities
- Purpose: Examine GCC banking sectors’ balance sheet exposures, funding sources, shareholders and capital base structures, and financial soundness.
- Structural strengths:
  - Predominance of domestic banks minimized direct cross-border spillovers through the ownership channel within GCC and from international banks.
  - High share of the traditional banking book in banks’ on- and off-balance sheets limited losses from exposures to structured products and derivatives.
  - High profits and capital buffers in the run-up to the 2008-09 global recession and international financial crisis buttressed the banking sectors.
- Key vulnerabilities:
  - Increased reliance on external financing.
  - High exposures to the real estate and construction sectors and equity prices.
  - During the 2003–08 oil price boom: procyclical government spending, abundant banking sector liquidity, and bullish consumer and investor sentiments spurred non-oil real sector and rapid credit growth with associated build-up of domestic imbalances (e.g., asset price bubbles).
  - Credit growth was essentially funded by a relatively stable domestic deposit base, but more volatile external funding became increasingly important.
  - The 2008–09 global recession diminished oil revenues, reversed short-term capital inflows to the GCC region, and strained the rollover of private sector external debt.

### II. Structure of the GCC financial system
- Banking sector dominance and concentration:
  - Islamic banks control on average 24 percent of the region’s banking system assets.
  - In all six countries, the largest five banks are domestic and account for 50–80 percent of total banking sector assets.
- Nonbank financial institutions (NBFIs):
  - NBFIs have limited presence; investment funds growing rapidly but focused on domestic equity and real estate.
  - Most mutual investment funds are bank-owned; present, although limited, in Bahrain, Saudi Arabia, and the U.A.E.
  - Kuwait: 95 Investment companies (ICs) with total assets under management of more than 100 percent of GDP at end-2008, of which 42 percent is [text truncated in source].

### Key statistics — GCC total banking sector assets (percent of GDP), 2002–08
- Bahrain: 2002 106; 2003 106; 2004 108; 2005 105; 2006 123; 2007 254 1/; 2008 258.
- Kuwait: 2002 120; 2003 103; 2004 94; 2005 81; 2006 84; 2007 101; 2008 84.
- Oman: 2002 52; 2003 52; 2004 50; 2005 45; 2006 50; 2007 64; 2008 66.
- Qatar: 2002 85; 2003 84; 2004 76; 2005 80; 2006 85; 2007 103; 2008 94.
- Saudi: 2002 68; 2003 64; 2004 65; 2005 61; 2006 61; 2007 71; 2008 68.
- U.A.E.: 2002 111; 2003 105; 2004 107; 2005 120; 2006 133; 2007 162; 2008 142.
- Note: 1/ The increase in 2007 for Bahrain is due to the fact that some wholesale banks were re-licensed to retail banks.

### Box 1 — country-level highlights (selected)
- Bahrain:
  - Retail banking sector assets close to 260 percent of GDP at end-2008.
  - Three largest retail banks constitute 41 percent of total banking sector’s assets.
  - Financial sector contributes about one-third of GDP; total assets at around 1200 percent of GDP.
  - Investment funds AUM close to 80 percent of GDP.
- Kuwait:
  - Two largest banks account for half of banks’ total assets.
  - 95 ICs with total assets around 102 percent of GDP—around 42 percent proprietary trading.
- Oman:
  - Banking system share 66 percent of GDP; largest two banks control more than 55 percent of sector assets.
- Qatar:
  - Banking assets around 94 percent of GDP at end-2008; three largest local banks close to 70 percent of assets.
  - Government credit >27 percent of loans.
- Saudi Arabia:
  - Banking sector assets around 68 percent of GDP at end-2008.
  - Three largest banks account for 45 percent of total assets.
  - Pension fund assets: Saudi Arabia 3.2 percent of GDP (end-2007).
- U.A.E.:
  - Total assets over 140 percent of GDP at end-2008.
  - Three largest banks account for 32 percent of total assets.
  - Two Islamic mortgage finance companies: combined lending around 16 percent of banks’ officially reported real estate lending and 3 percent of banks’ private sector credit; restructuring after November 2008 government announcement.

### Banking system concentration (2007) — Top 3 / Top 5 banks (percent of total assets)
- Bahrain: Top 3 banks 40.5; Top 5 banks 49.5
- Kuwait: Top 3 banks 63.0; Top 5 banks 81.0
- Oman: Top 3 banks 65.6; Top 5 banks 81.1
- Qatar: Top 3 banks 67.4; Top 5 banks 79.7
- Saudi Arabia: Top 3 banks 45.5; Top 5 banks 66.0
- U.A.E.: Top 3 banks 31.8; Top 5 banks 47.6

### Ownership structure and foreign presence (end-2007)
- Limits on foreign ownership:
  - Oman 35 percent; Kuwait and Qatar 49 percent; Saudi Arabia 40 percent for non-GCC nationals and 60 percent for GCC nationals; U.A.E. 40 percent.
- Foreign bank presence by total assets:
  - Bahrain 57 percent; U.A.E. 21 percent; Saudi Arabia 2 percent; Oman 12 percent; Qatar 10 percent; Kuwait 10 percent.
- Domestic public/quasi-public ownership (examples and ranges):
  - Kuwait 13 percent; U.A.E. over 52 percent (direct Government ownership 41.5 percent; Royal family 10.3 percent); Oman 30 percent; Saudi Arabia 35 percent.

### Recent trends in credit growth (2003–08) and drivers
- Average annual private sector credit growth, 2003–2008 (in percent):
  - Qatar around 45 percent
  - U.A.E. around 35 percent
  - Oman around 20 percent (slowest in region)
- Drivers:
  - Higher international oil prices boosted government spending and non-oil GDP growth, spurring business confidence, deposit growth, and reorientation of banking sector credit from public to private sector.
  - Client deposits were the main contributor to credit growth across 2002–08, but foreign liabilities became significant in 2006–07 for several countries.

### Banking sector balance sheets — stylized facts (2008)
- Liabilities and equity:
  - Customers’ deposits are the main liability source; bond financing small (up to 2 percent of total liabilities).
  - Foreign liabilities increased in some countries, notably in 2006–07; interbank liabilities significant in Kuwait and important in Oman and Qatar (27, 16, and 16 percent of total balance sheet, end-2008).
- Asset composition (loans and Islamic finance products share of portfolios, 2008):
  - Saudi Arabia: 50 percent
  - U.A.E.: 71 percent
  - Reported range: between 50 percent (Saudi Arabia) and 71 percent (U.A.E.).
- Securities holdings:
  - Range between 8 percent in Qatar up to 23 percent in Saudi Arabia.
  - Top 50 GCC banks (Bankscope, end-2008): on average 18 percent of portfolios in securities; about 1 percent held in equities or derivatives (2 percent for Islamic banks).

### Funding of credit growth and liquidity developments
- Funding pattern:
  - Client deposits main contributor to credit growth 2002–08; foreign liabilities and short-term capital inflows were important episodically.
  - GCC banks’ external financing rose fourfold since 2003, peaking at $103 billion in September 2008 (majority issuances by Bahrain, Saudi Arabia, and U.A.E. entities).
  - As oil prices declined in the second half of 2008, foreign financing markedly declined.
- Liquidity:
  - Liquidity severely squeezed in 2008 due to reversal of speculative foreign deposits and tight international capital markets.
  - Injection of liquidity by GCC authorities via central bank repos and direct placements of government deposits restored liquidity conditions; narrow and broad liquidity indicators returned to their 2006 levels or above by March 2009.
- Liquidity metrics defined:
  - Narrow liquidity ratio = cash and reserves at the central bank to total liabilities.
  - Broad liquidity ratio = cash, reserves at the central bank, and securities holdings as a share of total liabilities.

### Credit concentration and sectoral risks (selected country highlights)
- Kuwait and Bahrain: significant exposures to construction and real estate.
- Qatar and U.A.E.: important exposures to construction and real estate (sharp increases since 2002 in Qatar and Bahrain).
- Large exposures to business groups and high net worth individuals common across GCC banks.
- Country-specific portfolio exposures:
  - Bahrain: construction and real estate 33 percent of total loans; household 23 percent.
  - Kuwait: banking portfolio close to 50 percent in real estate and construction; household loans facilitating equity margin purchases 36 percent of household lending (close to 12 percent of banks’ loan portfolios in 2008).
  - Oman: household sector ~40 percent of total loans; household loans account for 17 percent of GDP.
  - Qatar: household 26 percent; construction and real estate 20 percent; government >27 percent of loans.
  - Saudi Arabia: trade 25 percent of total loans; real estate loans less than 10 percent.
  - U.A.E.: construction and speculative real estate 25 percent of total loans (including household mortgages); household sector 20 percent (excluding mortgages); two-thirds of total loans directed to large private business groups or government-related enterprises.

### Financial soundness — Capital adequacy
- Overall: GCC banking sectors well capitalized with CARs well above minimum regulatory standards.
- Minimum regulatory CARs reported:
  - Saudi Arabia: 8 percent
  - Oman: 10 percent
  - Qatar: 10 percent
  - U.A.E.: 11 percent (raised from 10 percent effective September 30, 2009; to be raised to 12 percent effective June 30, 2010)
  - Bahrain: 12 percent
  - Kuwait: 12 percent
- Country/bank CAR observations (selected):
  - U.A.E. sector CAR was 13.3 in 2008, declining from 17 percent in 2005; U.A.E. banks received capital injections in 2009 raising their CAR to 17.6 percent by June 2009.
  - Bahrain: locally incorporated retail banks CAR at 18.1 percent in 2008 (versus 21 percent in 2007); Tier 1 to RWA at 10.9 percent in 2008 (versus 17 percent in 2007). Islamic retail banks CAR 22 percent and Tier 1 capital 24.4 percent in 2008.
  - Table fragments for Kuwait, Oman, Qatar, Saudi Arabia, and U.A.E. show CAR series across years (values preserved in source table fragments).
- Risks to capital adequacy:
  - Continued fallout from the crisis on asset quality.
  - Risk of credit rating downgrades of U.A.E. corporates impacting CARs via valuation of risk-weighted assets.
  - Specific event: Standard and Poor’s downgraded several Dubai government related entities at end-November 2009 following Dubai World’s plan to restructure debt.

### Financial soundness — Asset quality and provisioning
- NPL trends:
  - NPLs to total loans declined from double-digit levels in 2003 to low levels in 2008 by international comparisons, but decline masks high credit growth.
  - Supervisory authorities required substantial general loan loss provisions in anticipation of rising NPLs in 2009 and possibly 2010.
  - Provisions-to-NPLs coverage across the GCC is very high by international standards.
- Country NPL examples:
  - Bahrain conventional retail NPL ratio 2.3 percent (2008); wholesale conventional NPL ratio 3.2 percent (2008 versus 2.5 percent in 2007); Islamic wholesale NPL ratio 4.2 percent (2008 versus 3.5 percent in 2007).
  - U.A.E. NPL series (table fragment): 14.3, 12.5, 8.3, 6.3, 2.9, 4.0, 4.6 (years shown in source).
- Ongoing risks:
  - Systems with highest pre-crisis credit growth and concentration in construction and real estate face higher risk.
  - High concentration in lending to large business groups; defaults of two prominent Saudi conglomerates affected Saudi banks and several GCC banks.
  - Dubai World’s November 25, 2009 announcement seeking a debt standstill and restructuring could have an important, but as yet unclear, impact on U.A.E. banks and other GCC banks with exposures to this group.

### Financial soundness — Profitability
- Income composition:
  - Net interest margins are the main income source, ranging from 53 percent of gross operating income in Qatar in 2008 to 80 percent in Saudi Arabia.
  - Qatari banks: net interest margins contributed 50 percent; remainder from fees, FX income, and investment income.
- 2008–2009 pressures:
  - Losses from investments in securities and increasing provisions weighed on operating profits.
  - Investment losses affected Saudi and Bahraini banks most; loan loss provisioning affected Kuwaiti banks most.
- Performance indicators:
  - ROE hovered around 20 percent in several countries; ROA at comfortable international levels.
  - Bahrain and Oman were the least profitable; Bahrain retail sector particularly weak.
  - Islamic retail banks in Bahrain: ROA 5 percent in 2008 (up from 4 percent in 2007).
- Government support examples:
  - Qatari government purchased equity and real estate assets of banks up to $6 billion (6 percent of GDP) during the first half of 2009.
  - Kuwait: Gulf Bank recapitalized in 2008 through capital injections by shareholders (68 percent) and the government (32 percent) via the Kuwait Investment Authority (KIA).
  - Wholesale banks in Bahrain suffered large investment portfolio impairments (Gulf International Bank losses $1.1 billion; Arab Banking Corporation losses $0.9 billion).

### Financial soundness — Liquidity
- Pre-crisis and crisis developments:
  - Liquidity peaked in 2007 amid speculative inflows; tightened in early 2008 and was further squeezed after Lehman’s collapse in September 2008.
  - Liquidity indicators: narrow and broad liquidity ratios and liquid assets to short-term liabilities deteriorated sharply in 2008.
- Policy actions and recovery:
  - Central bank repos and direct placements of government deposits restored liquidity; narrow and broad indicators returned to 2006 levels or above by March 2009.

### APPENDIX IV — Aggregated financial statements (selected aggregated figures, 2005–2009 Q1)
- Bahrain — Total Assets (USD 000): 23,731 (2005); 32,705 (2006); 38,707 (2007); 40,793 (2008); 41,052 (2009 (Q1)).
- Kuwait — Total Assets (USD millions): 79,349 (2005); 103,587 (2006); 152,172 (2007); 163,245 (2008); 156,154 (2009 (Q1)).
- Oman — Total Assets (USD millions): 14,547 (2005); 17,510 (2006); 21,996 (2007); 27,961 (2008); 26,919 (2009 (Q1)).
- Qatar — Total Assets (USD millions): 401,523 (2005); 590,014 (2006); 923,513 (2007); 1,268,027 (2008); 1,264,134 (2009 (Q1)).
- Saudi Arabia — Total Assets (USD million): 195,153 (2005); 221,183 (2006); 276,536 (2007); 340,872 (2008); 341,222 (2009 (Q1)).
- United Arab Emirates — Total Assets (USD millions): 92,410 (2005); 126,729 (2006); 245,787 (2007); 291,467 (2008); 295,198 (2009 (Q1)).

### Conclusions and policy implications — prioritized weaknesses and recommendations
- Overall assessment:
  - Moderate impact of the global financial crisis on GCC banking sectors demonstrates general soundness: well-capitalized banks with CARs well above minimum standards and comfortable leverage ratios by international comparisons.
  - Risks to asset quality remain as crisis fallout continues to materialize, especially in countries with high pre-crisis credit growth and heavy concentration in construction and real estate.
- Structural weaknesses requiring policy attention and recommended actions:
  1. Exposure to oil-price-driven credit cycles:
     - Issue: Rapid credit growth during oil boom introduced liquidity volatility and higher asset impairment risk when oil prices decline.
     - Recommendation: policy makers are encouraged to evaluate measures to dampen the impact of oil prices on economic activity and the financial sector.
  2. Asset management and concentration risks:
     - Issue: Significant concentration risk in lending to a few obligors and to sectors subject to market-price swings and asset bubbles (real estate, equities); high household exposures in some systems.
     - Recommendation: evaluate and address concentration and asset-management practices.
  3. Liquidity management and market access:
     - Issue: Low liquidity levels by international comparison and very small share in bond financing; increasing dependence on external financing.
     - Recommendation: evaluate liquidity management practices and reduce reliance on unstable external financing sources.

*Source: _wp1087 - References.*

### References .............................................................................................................

### _wp1087 - References

### I. INTRODUCTION
- The economies of the Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (U.A.E.)) share commonalities: all are large oil exporters with fixed exchange rate regimes, with the exception of Kuwait where its currency is pegged to a basket of currencies.
- Purpose: Examine GCC banking sectors’ balance sheet exposures, funding sources, shareholders and capital base structures, and financial soundness.
- Key structural strengths identified:
  - Predominance of domestic banks minimized direct cross-border spillovers through the ownership channel within GCC and from international banks.
  - High share of the traditional banking book in banks’ on- and off-balance sheets limited losses from exposures to structured products and derivatives.
  - High profits and capital buffers in the run-up to the 2008-09 global recession and international financial crisis buttressed the banking sectors.
- Key vulnerabilities identified:
  - Increased reliance on external financing.
  - High exposures to the real estate and construction sectors and equity prices.
  - During the 2003–08 oil price boom: procyclical government spending, abundant banking sector liquidity, and bullish consumer and investor sentiments spurred non-oil real sector and rapid credit growth with associated build-up of domestic imbalances (e.g., asset price bubbles).
  - Credit growth was essentially funded by a relatively stable domestic deposit base, but more volatile external funding became increasingly important.
  - The 2008–09 global recession diminished oil revenues, reversed short-term capital inflows to the GCC region, and strained the rollover of private sector external debt.
- Paper organization (by section):
  - Section I: structure of the financial sector, including cross-border ownership within the GCC.
  - Section II: analysis of the balance sheet of the banking sector including recent trends in credit growth and its contributing factors.
  - Section III: funding sources for banks and the importance of external funding in view of the drought in international capital markets.
  - Section IV: loan portfolio exposures and resulting credit risk.
  - Section V: financial soundness regarding capitalization, earnings quality and sustainability, asset quality and concentration, and liquidity.
  - Section VI: policy lessons.

### II. STRUCTURE OF THE GCC FINANCIAL SYSTEM
- Dominance and concentration:
  - The financial sector in the GCC is generally dominated by the banking sector, which is relatively concentrated with a few domestic players dominating the market.
  - Islamic banks control on average 24 percent of the region’s banking system assets.
  - In all six countries, the largest five banks are domestic and account for 50–80 percent of total banking sector assets.
- Nonbank financial institutions (NBFIs):
  - NBFIs have limited presence in the GCC, with some exceptions.
  - Investment funds have been growing rapidly in several countries but tend to remain largely focused on domestic equity and real estate.
  - Most mutual investment funds are bank-owned and are present, although on a limited basis, in Bahrain, Saudi Arabia, and the U.A.E.
  - Kuwait has 95 Investment companies (ICs) with total assets under management of more than 100 percent of GDP at end-2008, of which 42 percent is [text truncated in source].

### Key Table: GCC Total Banking Sector Assets, 2002–08 (In percent of GDP)
- Bahrain: 2002 106; 2003 106; 2004 108; 2005 105; 2006 123; 2007 254 1/; 2008 258.
- Kuwait: 2002 120; 2003 103; 2004 94; 2005 81; 2006 84; 2007 101; 2008 84.
- Oman: 2002 52; 2003 52; 2004 50; 2005 45; 2006 50; 2007 64; 2008 66.
- Qatar: 2002 85; 2003 84; 2004 76; 2005 80; 2006 85; 2007 103; 2008 94.
- Saudi: 2002 68; 2003 64; 2004 65; 2005 61; 2006 61; 2007 71; 2008 68.
- U.A.E.: 2002 111; 2003 105; 2004 107; 2005 120; 2006 133; 2007 162; 2008 142.
- Note: 1/ The increase in 2007 for Bahrain is due to the fact that some wholesale banks were re-licensed to retail banks.
- Sources cited for table data: IFS; and authors' estimates.

### Banking Sector Features and Appendixes
- Banking sector features summarized:
  - Concentration: the largest five banks in each country account for 50–80 percent of total banking sector assets.
  - Growing prominence of Islamic banks (average 24 percent market share).
- Appendixes included in the source document:
  - Appendix I: List of Commercial Banks in GCC Countries.
  - Appendix II: Concentration of the Banking Sector.
  - Appendix III: Ownership Structure of GCC Domestic Banks.
  - Appendix IV: Aggregated Financial Statements of the GCC Banking Sector.

*Source: _wp1087 - References.*

### Box 1. Highlights of the GCC Financial Sector

### Box 1. Highlights of the GCC Financial Sector

### Country-level highlights
- Bahrain
  - Retail banking sector assets amounting to close to 260 percent of GDP at end-2008.
  - Together with the U.A.E., Bahrain’s retail banking sector is the least concentrated among the GCC systems.
  - The three largest retail banks (Bank of Bahrain and Kuwait, National Bank of Bahrain, and Ahli United Bank) constitute 41 percent of the total banking sector’s assets.
  - Vibrant wholesale banking sector (largest: Arab Bank Corporation) providing off-shore, investment banking, and project finance services to the region.
  - Financial sector contributes about one-third of the country’s GDP and employs around 3 percent of its workforce, with total assets at around 1200 percent of GDP.
  - Investment funds with assets under management close to 80 percent of GDP.
  - Wholesale banking sector has been strongly affected by the global crisis.

- Kuwait
  - Banking sector is highly concentrated with the two largest banks (National Bank of Kuwait and Kuwait Finance House) accounting for half of the banks’ total assets.
  - 95 Investment companies (ICs) with total assets (both on- and off-balance sheet) of around 102 percent of GDP—around 42 percent of which is on account of proprietary trading.
  - Investment companies sector has been strongly affected by tight global liquidity conditions and falling asset prices.

- Oman
  - Banking system is the smallest in the region with a share of 66 percent of GDP.
  - Some of the largest government projects are directly financed by foreign banks.
  - Banking sector highly concentrated: largest two banks (Bank Muscat and the National Bank of Oman) control more than 55 percent of the sector’s assets.

- Qatar
  - Banking system is the third largest after Bahrain and the U.A.E., with assets around 94 percent of GDP at end-2008.
  - Sector highly concentrated: three largest local banks (Qatar National Bank, Commercial Bank of Qatar, and Doha Bank) accounting for close to 70 percent of total assets.
  - Entry of foreign banks under the Qatar Financial Center has increased competition; foreign banks mainly engaged in financing large infrastructure projects and investment banking.
  - Three specialized government-owned banks operate mainly in developmental and housing projects; six finance and leasing companies have a marginal share of financial sector assets.

- Saudi Arabia
  - Banking sector assets around 68 percent of GDP at end-2008.
  - Sector only moderately concentrated: three largest banks (National Commercial Bank, Samba Financial Group, and Al Rajhi Bank) accounting for 45 percent of total assets.
  - Public ownership (including quasi government) is fairly extensive in four banks and reaches 80 percent in the largest bank, the National Commercial Bank.
  - Five sizable specialized credit institutions with asset size close to half that of the banking sector; provide interest free loans for public policy purposes.
  - Three autonomous government institutions (the Pension Fund, the General Organization for Social Insurance, and the Saudi Fund for Development) dominate the primary market for government securities.
  - Nonbank financial institutions (NBFIs) account for a marginal share of the total financial system’s assets.

- U.A.E.
  - Second largest banking sector in the GCC after Bahrain, with total assets accounting for over 140 percent of GDP.
  - Banking system is the least concentrated: three largest banks (National Bank of Abu Dhabi, Emirates Bank International, and Abu Dhabi Commercial Bank) account for 32 percent of total assets.
  - Bank ownership predominantly held by the government.
  - Two important Islamic mortgage finance companies with combined lending amounting to around 16 percent of banks’ officially reported real estate lending and 3 percent of banks’ private sector credit; being restructured by a federal committee after a Government announcement in November 2008 that they were to be merged.
  - Authorities considering converting the two companies to a bank with the ability to obtain funding through deposit taking.
  - The two companies have been highly dependent on short-term funds from the domestic banking sector to finance their long-term lending operations.

### Banking system concentration (2007)
- Top 3 banks / Top 5 banks (as percent of total banking sector assets)
  - Bahrain: Top 3 banks 40.5; Top 5 banks 49.5
  - Kuwait: Top 3 banks 63.0; Top 5 banks 81.0
  - Oman: Top 3 banks 65.6; Top 5 banks 81.1
  - Qatar: Top 3 banks 67.4; Top 5 banks 79.7
  - Saudi Arabia: Top 3 banks 45.5; Top 5 banks 66.0
  - U.A.E.: Top 3 banks 31.8; Top 5 banks 47.6

### Nonbank financial sector and markets
- Investment companies (ICs) provide brokerage, portfolio management, forward trading, IPOs, local and international fund management, corporate finance advisory services (mergers, acquisitions, underwriting, private placements), and private equity.
- Nonbank finance companies are scarce; most important in the U.A.E., although the two largest (in restructuring) had lending worth only about 3 percent of the banking sector’s loans.
- Insurance sector small and focused on property/casualty risks.
- Contractual savings underdeveloped and dominated by public pension systems (mainly defined benefit, “pay-as-you-go” schemes).
  - Pension fund assets: Saudi Arabia 3.2 percent of GDP (end-2007); U.A.E. 2.7 percent of GDP (end-2007); Bahrain 20.5 percent of GDP (end-2006).
- Stock market capitalization:
  - $117 billion (29 percent of GDP) in 2003
  - $1.1 trillion (177 percent of GDP) in 2005
  - $650 billion (73 percent of GDP) by mid-2009
- Sukuk issuance worldwide rose from around $5 billion per year in 2001–04 to $32 billion in 2007, before falling to $15 billion in 2008; most of 2008 issuance was dollar-denominated by GCC entities.
- Local debt markets underdeveloped as governments drew down outstanding debt in recent years.

### Ownership structure of banks (end-2007)
- Limits on foreign ownership (except Bahrain):
  - Oman 35 percent
  - Kuwait and Qatar 49 percent
  - Saudi Arabia 40 percent for non-GCC nationals and 60 percent for GCC nationals
  - U.A.E. 40 percent
- Foreign bank presence by total assets:
  - Bahrain 57 percent
  - U.A.E. 21 percent
  - Saudi Arabia 2 percent
  - Oman 12 percent
  - Qatar 10 percent
  - Kuwait 10 percent
- Domestic banking sector public/quasi-public ownership (range and examples)
  - Kuwait 13 percent
  - U.A.E. over 52 percent (direct Government ownership 41.5 percent; Royal family 10.3 percent)
  - Oman 30 percent (majority quasi government)
  - Saudi Arabia 35 percent (majority quasi government)
- Joint ventures and cross-border ownership limited; U.A.E. and Bahrain notable exceptions with important foreign bank presence; Bahrain and Oman have sizeable joint ventures with foreign investors mostly from the GCC.

### Recent trends in credit growth (2003–08)
- Average annual private sector credit growth, 2003–2008 (in percent):
  - Qatar around 45 percent
  - U.A.E. around 35 percent
  - Oman around 20 percent (slowest in region)
- Private sector credit to GDP compares favorably to other emerging countries; when measured relative to non-oil GDP, credit to the private sector in the GCC registers the highest rates among emerging countries.
- High rates of credit growth during an economic upturn increase vulnerability to downturns; rapid credit growth during 2003–08 has increased systems’ vulnerability.

### Drivers of credit growth
- Higher international oil prices boosted government spending and non-oil GDP growth, spurring business confidence and private sector activity, increasing demand for and supply of credit.
- Deposits in the banking sector grew as private sector income increased, boosting banks’ lending capacity.
- Banking sector credit reoriented from public to private sector.

### Banking sector balance sheets: stylized facts (2008)
- Liabilities and equity structure: customers’ deposits are the main liability source; bond financing small (up to 2 percent of total liabilities).
- Foreign liabilities increased in some countries, notably in 2006–07; interbank liabilities significant in Kuwait and important in Oman and Qatar (27, 16, and 16 percent of total balance sheet, end-2008).
- Asset composition (loans and Islamic finance products share of portfolios, 2008):
  - Saudi Arabia: 50 percent
  - Bahrain: implied range in figures (loans significant)
  - U.A.E.: 71 percent
  - Reported range in text: loans and Islamic finance products constitute between 50 percent (Saudi Arabia) and 71 percent (U.A.E.) of banks’ portfolios.
- Securities holdings range between 8 percent in Qatar up to 23 percent in Saudi Arabia.
- Analysis of top 50 GCC banks (Bankscope data, end-2008): on average banks held 18 percent of portfolios in securities; about 1 percent held in equities or derivatives (2 percent for Islamic banks).

### Funding of credit growth (2002–08)
- Client deposits were the main contributor to credit growth across the six countries over the period.
- Funding pattern volatile, increasing banks’ funding risk.
- Foreign liabilities significant drivers of rapid credit growth for:
  - U.A.E. in 2006
  - Oman, Qatar, Saudi Arabia, and the U.A.E. in 2007
- Increase in U.A.E. net foreign liabilities in 2006 related to issuance of foreign debt and medium-term notes to address maturity mismatches.
- In 2007 increases reflected short-term capital inflows speculating on GCC currency appreciation.
- As oil prices declined in the second half of 2008, foreign financing markedly declined as speculative capital inflows reversed and international capital markets dried out.

### Credit concentration and sectoral risks
- Sectoral concentration varies across GCC:
  - Kuwait and Bahrain: significant exposures to construction and real estate.
  - Qatar and U.A.E.: important exposures to construction and real estate (sharp increases since 2002 in Qatar and Bahrain).
  - U.A.E. banks’ measured exposure to construction and real estate appears relatively low, possibly due to domestic real estate/mortgage finance companies and direct external financing of large real estate projects.
- Large exposures to business groups and high net worth individuals common across GCC banks.
- Credit to nonbank financial entities notable in Kuwait and the U.A.E.; particularly high in Kuwait.
- Lending to the public sector declined sharply; direct credit to government marginal in most countries except Qatar (>27 percent of loans).
- Household lending:
  - Marked increase in consumer lending in the U.A.E.
  - Lending for equity investment increased in Kuwait.
  - In Saudi Arabia, “other” category of household loans rose from around 46 percent to 72 percent of household loans during 2002–08.
  - Household loans generally limited to salaried individuals, lowering some credit risk but vulnerabilities exist if large layoffs of expatriate workers occur.

- Country-specific risk highlights:
  - Bahrain: retail banking portfolio highly exposed to construction and real estate (33 percent of total loans) and household sectors (23 percent). Household loans mainly secured by salary.
  - Kuwait: banking portfolio close to 50 percent in real estate and construction; household loans (excluding mortgages) 16 percent; nonbank financial institutions 12 percent. Household loans include loans facilitating equity margin purchases (36 percent of total household lending, or close to 12 percent of banks’ loan portfolios in 2008). Stressed domestic investment companies have strained the banking sector; two large investment companies defaulted on some or all of their debt (events in January and May 2009) and are negotiating or completing debt restructuring agreements.
  - Oman: banking sector highly exposed to household sector (~40 percent of total loans). Household loans account for 17 percent of GDP. High corporate loan concentration in a handful of large exposures; historical asset quality deterioration in 2000–02 due to troubles at large corporate clients. Central bank established a lending cap limiting personal loans to 40 percent of total loans.
  - Qatar: banking sector concentrated in household (26 percent), construction and real estate (20 percent), and government (27 percent). Household loans may include an important share for securities investments; household loans largely extended with salary assignment.
  - Saudi Arabia: loan portfolio relatively diversified; trade main sector at 25 percent of total loans. Household loans well diversified; real estate loans less than 10 percent of total loans. Prudential regulations require banks to obtain Saudi Arabia Monetary Authority approval for foreign lending and impose statutory caps on individual indebtedness.
  - U.A.E.: banking sector highly exposed to construction and speculative real estate (25 percent of total loans, including household mortgages) and to household sector (20 percent, excluding household mortgages). Trade accounts for 13 percent of loans. High concentration of credit risk in corporate sector—two-thirds of total loans directed to large private business groups or government-related enterprises; concentration in financings of a few family-owned businesses and sizeable government-related entities.

### Financial soundness
- Capitalization
  - Banking sectors in GCC are well capitalized with capital adequacy ratios (CAR) well above minimum CARs and comfortable leverage ratios by international comparisons.
  - High capitalization levels related to high profitability, which declined in recent years due to rapid credit growth and increasing leverage.
  - In 2008, banking sector profitability affected by higher provisioning requirements related to the crisis, impacting ability to increase capital internally.
  - CAR of the banking sector in the U.A.E. was 13.3 in 2008, declining significantly from 2005 when it stood at 17 percent.
  - U.A.E. banks have received capital injections by the government in 2009, raising their CAR to

*Source: Country authorities; Moody's; banks' annual reports; IFS; WEO; Zawya; IMF staff estimates; and authors' calculations.*

### 17.6 percent by June 2009 and making them among the best capitalized in emerging markets.

### _wp1087 - 17.6 percent by June 2009 and making them among the best capitalized in emerging markets.

### Capital adequacy
- GCC banking sectors were well capitalized with capital adequacy ratios (CARs) well above minimum regulatory standards.
- Reported minimum regulatory CARs:
  - Saudi Arabia: 8 percent
  - Oman: 10 percent
  - Qatar: 10 percent
  - U.A.E.: 11 percent (raised from 10 percent effective September 30, 2009; to be raised to 12 percent effective June 30, 2010)
  - Bahrain: 12 percent
  - Kuwait: 12 percent
- Country- and bank-category CAR observations (2007–2009 where reported):
  - Bahrain: locally incorporated retail banks CAR at 18.1 percent in 2008 (versus 21 percent in 2007); Tier 1 capital to RWA at 10.9 percent in 2008 (versus 17 percent in 2007). Conventional wholesale banks CAR 19.3 percent in 2008 (versus 19 percent in 2007); Tier 1 to RWA 17.3 percent in 2008 (versus 16 percent in 2007). Islamic retail banks CAR 22 percent and Tier 1 capital 24.4 percent in 2008. Islamic wholesale banks CAR 25 percent in 2008.
  - Kuwait: CAR entries showing 18.4, 17.3, 21.3, 21.8, 18.5, 16.0 (table fragment).
  - Oman: CAR entries showing 17.6, 17.6, 18.5, 17.2, 15.8, 14.7, 15.5 (table fragment).
  - Qatar: CAR entries showing 25.3, 24.9, 24.8, 13.5, 12.2, 15.1, 15.7 (table fragment).
  - Saudi Arabia: CAR entries showing 19.4, 17.8, 17.8, 21.9, 20.6, 16.0 (table fragment).
  - United Arab Emirates: CAR entries showing 18.9, 16.9, 17.4, 16.6, 14.0, 13.3, 18.6 (table fragment).
- Risks to capital adequacy:
  - Continued fallout from the crisis on asset quality.
  - Risk of credit rating downgrades of U.A.E. corporates by major rating agencies, which could impact banks’ CARs through the valuation of risk-weighted assets.
  - Specific event: Standard and Poor’s downgraded several Dubai government related entities at end-November 2009 following Dubai World’s plan to restructure debt.

### Asset quality
- NPL trends:
  - NPLs to total loans declined from double-digit levels in 2003 to low levels in 2008 by international comparisons, though the decline masks high credit growth during the period.
  - Supervisory authorities required substantial general loan loss provisions in anticipation of rising NPLs in 2009 and possibly 2010.
  - Provisions-to-NPLs coverage across the GCC is very high by international standards.
- Country and bank-category NPL observations:
  - Bahrain: conventional retail NPL ratio 2.3 percent (2008); wholesale conventional NPL ratio 3.2 percent (2008 versus 2.5 percent in 2007); Islamic wholesale NPL ratio 4.2 percent (2008 versus 3.5 percent in 2007).
  - Table fragments show NPL series for countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, U.A.E.) with values across years 2003–2009 (e.g., U.A.E. NPLs: 14.3, 12.5, 8.3, 6.3, 2.9, 4.0, 4.6).
- Ongoing and heightened risks:
  - Systems with highest pre-crisis credit growth and concentration in construction and real estate face higher risk.
  - High concentration in lending to large business groups; defaults of two prominent Saudi conglomerates affected Saudi banks and several other GCC banks with exposures.
  - Dubai World’s November 25, 2009 announcement seeking a debt standstill and restructuring could have an important, but as yet unclear, impact on U.A.E. banks and other GCC banks with exposures to this group.

### Profitability
- Main income sources:
  - Net interest margins are the main source of income, ranging from 53 percent of gross operating income in Qatar in 2008 to 80 percent in Saudi Arabia (Figure 11).
  - Qatari banks: net interest margins contributed 50 percent; remainder from banking fees and commissions, FX income, and investment income.
- 2008–2009 profitability pressures:
  - Losses from investments in securities and increasing provisions weighed on operating profits across the GCC.
  - Investment losses affected Saudi and Bahraini banks most; loan loss provisioning affected Kuwaiti banks most.
- Performance indicators:
  - Returns on equity (ROE) hovered around 20 percent in several countries; returns on assets (ROA) at comfortable international levels.
  - Bahrain and Oman were the least profitable (Bahrain retail sector particularly weak).
  - Islamic retail banks in Bahrain: ROA 5 percent in 2008 (up from 4 percent in 2007).
- Government support and interventions:
  - Qatari government purchased equity and real estate assets of banks up to $6 billion (6 percent of GDP) during the first half of 2009.
  - Kuwait: Gulf Bank recapitalized in 2008 through capital injections by shareholders (68 percent) and the government (32 percent) via the Kuwait Investment Authority (KIA).
  - Wholesale banks in Bahrain suffered large investment portfolio impairments (e.g., Gulf International Bank losses $1.1 billion; Arab Banking Corporation losses $0.9 billion).

### Liquidity
- Pre-crisis and crisis developments:
  - Liquidity was severely squeezed in 2008 due to reversal of speculative foreign deposits and tight international capital markets.
  - GCC banks’ external financing rose fourfold since 2003, peaking at $103 billion in September 2008 (majority issuances by Bahrain, Saudi Arabia, and U.A.E. entities).
  - Liquidity ratios ranked low by international comparisons, reflecting high asset/liability maturity mismatches.
  - Liquidity peaked in 2007 amid speculative inflows; tightened in early 2008 and was further squeezed after Lehman’s collapse in September 2008.
- Policy actions and recovery:
  - Injection of liquidity by GCC authorities via central bank repos and direct placements of government deposits quickly restored liquidity conditions.
  - Narrow and broad liquidity indicators showed liquidity conditions returned to their 2006 levels or above by March 2009.
- Liquidity metrics and observations:
  - Narrow liquidity ratio = cash and reserves at the central bank to total liabilities.
  - Broad liquidity ratio = cash, reserves at the central bank, and securities holdings as a share of total liabilities.
  - Figures and series indicate country-level movements in reserves with central bank (December 2007 = 100), narrow and broad liquidity ratios, and liquid assets to short-term liabilities for Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and U.A.E. across 2005–Mar-09.

### Conclusions and policy implications
- Overall assessment:
  - The moderate impact of the global financial crisis on GCC banking sectors demonstrates general soundness: well-capitalized banks with CARs well above minimum standards and comfortable leverage ratios by international comparisons.
  - Nevertheless, risks to asset quality remain as crisis fallout continues to materialize, especially in countries with high pre-crisis credit growth and heavy concentration in construction and real estate.
- Identified structural weaknesses requiring policy attention:
  1. Exposure to oil-price-driven credit cycles:
     - Rapid credit growth during the oil boom introduced liquidity volatility and higher asset impairment risk when oil prices decline.
     - Recommendation: policy makers are encouraged to evaluate measures to dampen the impact of oil prices on economic activity and the financial sector.
  2. Asset management and concentration risks:
     - Significant concentration risk in lending to a few obligors and to sectors subject to market-price swings and asset bubbles (real estate, equities).
     - High household exposures in some systems create risks if economic slowdown leads to massive expatriate layoffs; household lending is generally secured by salaries but remains vulnerable.
     - Recommendation: evaluate and address concentration and asset-management practices.
  3. Liquidity management and market access:
     - GCC banks maintain low liquidity levels by international comparison and have a very small share in bond financing, complicating maturity mismatch management.
     - Increasing dependence on external financing increased vulnerability to global credit conditions; the 2008 tightening demonstrated this vulnerability.
     - Recommendation: evaluate liquidity management practices and reduce reliance on unstable external financing sources.

*Source: IMF staff compilation from the provided chapter content.*

### APPENDIX I. LIST OF COMMERCIAL BANKS IN GCC COUNTRIES

### APPENDIX I. LIST OF COMMERCIAL BANKS IN GCC COUNTRIES

### Local Banks — Bahrain, Kuwait, Oman
- Bahrain: Ahli United Bank; Bahrain Development Bank; Bahraini Saudi Bank; BBK; BMI Bank; Eskan Bank; Future Bank; National Bank of Bahrain; Oasis Capital Bank; Al Baraka Islamic Bank*; Al-Salam Bank –Bahrain*; Bahrain Islamic Bank*; Khaleeji Commercial Bank*; Shamil Bank of Bahrain *.
- Kuwait: National Bank of Kuwait; Kuwait Finance House*; Gulf Bank KSC; Commercial Bank of Kuwait; Burgan Bank; Bank of Kuwait & The Middle East; Kuwait International Bank*; Boubyan Bank*; Al Ahli Bank of Kuwait.
- Oman: National Bank of Oman; Oman Arab Bank; Oman International Bank; Bank Muscat; Bank Dhofar; SAKBank Sohar; Ahli Bank; Bank Muscat (also listed under Local).

### Foreign Banks — Bahrain, Kuwait, Oman
- Bahrain: Arab Bank plc; BNP Paribas; Credit Libanais; Habib Bank Ltd.; HSBC Bank Middle East Limited; ICICI Bank; MashreqBank psc; Citibank; Standard Chartered Bank; State Bank of India; United Bank Limited.
- Kuwait: Bank of Bahrain and Kuwait; BNP Paribas; HSBC Bank Middle East; National Bank of Abu Dhabi; Citibank; Habib Bank; Bank Melli Iran; Bank Saderat Iran; State Bank of India; The Housing Bank for Trade and Finance; Rafidain Bank.
- Oman: National Bank of Abu Dhabi; Qatar National Bank; Bank Muscat; National Bank of Kuwait; Standard Chartered Bank; Bank of Baroda; BNP Paribas; Janata Bank.

Table 1. GCC: List of Commercial Banks in GCC countries (2008)

### Local Banks — Qatar, Saudi Arabia, U.A.E.
- Qatar: Qatar National Bank; Commercial Bank of Qatar; Doha Bank; Qatar Islamic Bank*; Ahli Bank; International Bank of Qatar; Masraf Al Rayan*; Qatar International Islamic Bank*; Al Khalij Commercial Bank.
- Saudi Arabia: National Commercial Bank; Samba Financial Group; Al Rajhi Bank*; Riyad Bank; Banque Saudi Fransi; Saudi British Bank; Arab National Bank; Saudi Hollandi Bank; Saudi Investment Bank; Bank Al-Jazira; Bank AlBilad*.
- U.A.E.: National Bank of Abu Dhabi; Abu Dhabi Commercial Bank; Union National Bank; The National Bank of Dubai; Commercial Bank of Dubai; Dubai Islamic Bank*; Emirates Bank International; Emirates Islamic Bank; Mashreq Bank*; Sharjah Islamic Bank; Bank of Sharjah; United Arab Bank; National Bank of Ras-Al Khaimah; Commercial Bank International; National Bank of Fujairah; National Bank of Umm-Al Qaiwain; First Gulf Bank; Abu Dhabi Islamic Bank*; Dubai Bank*; Noor Al Islam Bank*; Al Masraf; Invest Bank; Al Hilal Bank*.

### Foreign Banks — Qatar, Saudi Arabia, U.A.E.
- Qatar: Arab Bank Limited; Mashreq Bank; HSBC Bank Middle East; Saderat Iran Bank; United Bank; Standard Chartered Bank; BNP Paribas; Bank Muscat; Bank Saderat Iran (listed); National Bank of Bahrain; National Bank of Kuwait; El Nillien Bank; Calyon-Corporate.
- Saudi Arabia: Emirates Bank; National Bank of Bahrain; National Bank of Kuwait; Bank Muscat; BNP Paribas; Arab Bank; Banque Du Caire; Rafidain Bank; Janata Bank.
- U.A.E.: HSBC Bank Middle East; Arab African International Bank; Banque Libanaise Pour Le Commerce (France) S.A.; Al Ahli Bank of Kuwait; Barclays Bank; Habib Bank; Habib Bank AG Zurich; Standard Chartered Bank; CitiBank; Bank Saderat Iran; Bank Melli Iran; Blom Bank France; Lloyds TSB Bank PLC; ABN Amro Bank; United Bank; Doha Bank; Samba Financial Group.

Notes: *Islamic bank.
Source: GCC central banks.

*Table 1. GCC: List of Commercial Banks (2008, concluded)*

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### APPENDIX II. CONCENTRATION OF THE BANKING SECTOR

### Bahrain: Concentration of the Banking Sector, 2007 (In percent)
- Bank of Bahrain and Kuwait: Share of total assets 19.0; Cumulative share of total assets 19.0
- National Bank of Bahrain: Share of total assets 11.5; Cumulative share of total assets 30.5
- Ahli United Bank: Share of total assets 10.0; Cumulative share of total assets 40.5
- Shamil Bank of Bahrain*: Share of total assets 4.6; Cumulative share of total assets 45.1
- Kuwait Finance House*: Share of total assets 4.4; Cumulative share of total assets 49.5
- Bahrain Islamic Bank*: Share of total assets 4.0; Cumulative share of total assets 53.5
- Future Bank: Share of total assets 3.0; Cumulative share of total assets 56.5
- Al-Salam Bank*: Share of total assets 2.4; Cumulative share of total assets 58.9
- Albaraka Islamic Bank*: Share of total assets 2.4; Cumulative share of total assets 61.3
- Khaleeji Commercial Bank*: Share of total assets 1.6; Cumulative share of total assets 62.9
- Bahraini Saudi Bank: Share of total assets 1.4; Cumulative share of total assets 64.3

Source: Authors' estimates.
Notes: * Islamic bank.

### Kuwait: Concentration of the Banking Sector, 2007 (In percent)
- National Bank of Kuwait: Share of total assets 29.0; Cumulative share of total assets 29.0
- Kuwait Finance House*: Share of total assets 22.0; Cumulative share of total assets 51.0
- Gulf Bank: Share of total assets 12.0; Cumulative share of total assets 63.0
- Commercial Bank of Kuwait: Share of total assets 11.0; Cumulative share of total assets 74.0
- Burgan Bank: Share of total assets 7.0; Cumulative share of total assets 81.0
- AlAhli Bank of Kuwait: Share of total assets 7.0; Cumulative share of total assets 88.0
- Bank of Kuwait and the Middle East: Share of total assets 3.0; Cumulative share of total assets 91.0
- Boubyan Bank: Share of total assets 2.0; Cumulative share of total assets 93.0

Source: Moody’s Kuwait Banking System Profile (April, 2008).
Notes: * Islamic bank.

### Oman: Concentration of the Banking Sector, 2007 (In percent)
- Bank Muscat: Share of Total Assets 40.8; Cumulative Share of Total Assets 40.8
- National Bank of Oman: Share of Total Assets 14.3; Cumulative Share of Total Assets 55.1
- Oman International Bank: Share of Total Assets 10.5; Cumulative Share of Total Assets 65.6
- Bank Dhofar: Share of Total Assets 9.2; Cumulative Share of Total Assets 74.8
- Oman Arab Bank: Share of Total Assets 6.3; Cumulative Share of Total Assets 81.1
- Bank Sohar: Share of Total Assets 4.1; Cumulative Share of Total Assets 85.2
- Ahli Bank: Share of Total Assets 3.0; Cumulative Share of Total Assets 88.2

Sources: Moody’s Oman Banking Statistical Supplement (July, 2008), Central Bank of Oman, and authors' estimates.
Notes: * Islamic bank.

### Qatar: Concentration of the Banking Sector, 2007 (In percent)
- Qatar National Bank: Share of Total Assets 37.5; Cumulative Share of Total Assets 37.5
- Commercial Bank of Qatar: Share of Total Assets 19.7; Cumulative Share of Total Assets 57.2
- Doha Bank: Share of Total Assets 10.2; Cumulative Share of Total Assets 67.4
- Ahli Bank: Share of Total Assets 5.3; Cumulative Share of Total Assets 72.7
- Qatar Islamic Bank*: Share of Total Assets 7.0; Cumulative Share of Total Assets 79.7
- International Bank of Qatar: Share of Total Assets 3.7; Cumulative Share of Total Assets 83.4
- Masraf Al Rayan*: Share of Total Assets 3.5; Cumulative Share of Total Assets 86.9
- Qatar International Islamic Bank*: Share of Total Assets 3.4; Cumulative Share of Total Assets 90.3
- Al Khalij Commercial Bank: Share of Total Assets 1.7; Cumulative Share of Total Assets 92.0

Source: Authors' estimates.
Notes: * Islamic bank.

### Saudi Arabia: Concentration of the Banking Sector, 2007 (In percent)
- National Commercial Bank: Share of Total Assets 19.4; Cumulative Share of Total Assets 19.4
- Samba Financial Group: Share of Total Assets 14.4; Cumulative Share of Total Assets 33.8
- Al Rajhi Bank*: Share of Total Assets 11.6; Cumulative Share of Total Assets 45.4
- Riyadh Bank: Share of Total Assets 11.3; Cumulative Share of Total Assets 56.7
- Banque Saudi Fransi: Share of Total Assets 9.3; Cumulative Share of Total Assets 66.0
- Saudi British Bank: Share of Total Assets 9.1; Cumulative Share of Total Assets 75.1
- Arab National Bank: Share of Total Assets 8.8; Cumulative Share of Total Assets 83.9
- Saudi Hollandi Bank: Share of Total Assets 4.7; Cumulative Share of Total Assets 88.6
- Saudi Investment Bank: Share of Total Assets 4.3; Cumulative Share of Total Assets 92.9
- Bank Al-Jazira: Share of Total Assets 2.0; Cumulative Share of Total Assets 94.9
- Bank AlBilad*: Share of Total Assets 1.5; Cumulative Share of Total Assets 96.4

Sources: Moody’s Saudi Arabia Banking System Profile (July, 2008), and authors' estimates.
Notes: * Islamic bank.

### U.A.E.: Concentration of the Banking Sector, 2007 (In percent)
- National Bank of Abu Dhabi: Share of Total Assets 11.2; Cumulative Share of Total Assets 11.2
- Emirates Bank International: Share of Total Assets 11.1; Cumulative Share of Total Assets 22.3
- Abu Dhabi Commercial Bank: Share of Total Assets 9.5; Cumulative Share of Total Assets 31.8
- National Bank of Dubai: Share of Total Assets 8; Cumulative Share of Total Assets 39.8
- HSBC Middle East: Share of Total Assets 7.8; Cumulative Share of Total Assets 47.6
- First Gulf Bank: Share of Total Assets 7.3; Cumulative Share of Total Assets 54.9
- Mashreqbank*: Share of Total Assets 6.6; Cumulative Share of Total Assets 61.5
- Dubai Islamic Bank*: Share of Total Assets 6.1; Cumulative Share of Total Assets 67.6
- Union National Bank: Share of Total Assets 4.4; Cumulative Share of Total Assets 72
- Abu Dhabi Islamic Bank*: Share of Total Assets 3.4; Cumulative Share of Total Assets 75.4
- Commercial Bank of Dubai: Share of Total Assets 2.5; Cumulative Share of Total Assets 77.9
- Dubai Bank*: Share of Total Assets 1.2; Cumulative Share of Total Assets 79.1
- National Bank of Ras Al-Khaimah: Share of Total Assets 1; Cumulative Share of Total Assets 80.1

Source: Moody’s Saudi Arabia Banking System Outlook (December, 007), and authors' estimates.
Notes: * Islamic bank

---

### APPENDIX III. OWNERSHIP STRUCTURE OF GCC DOMESTIC BANKS

### Bahrain: Ownership Structure of the Domestic Banking Sector (2007) (In percent)
- Ahli United Bank: Gov. 10.5; Quasi Gov. 62.8; Private Domestic 26.7 1/
- Bank of Bahrain and Kuwait: Gov. 32.1; Quasi Gov. 19.1; Private Domestic 48.0
- National Bank of Bahrain: Gov. 49.0; Private Domestic 51.0
- Shamil Bank of Bahrain*: Private Domestic 100.0
- Bahrain Islamic Bank*: Gov. 4.0; Private Domestic 33.3; Foreign Non-GCC 62.8 2/
- Al-Salam Bank Bahrain*: Quasi Gov. 35.0; Foreign Non-GCC 65.0 3/
- Albaraka Islamic Bank*: Gov. 50.0; Foreign Non-GCC 50.0 4/
- Khaleeji Commercial Bank*: Gov. 42.2; Private Domestic 57.8
- Bahraini Saudi Bank: Gov. 10.0; Quasi Gov. 84.5; Private Domestic 5.5
- Kuwait Finance house*: Private Domestic 100.0
- Future Bank 5/: Private Domestic 33.3 5/; Foreign Non-GCC 66.6 5/

Sources: Bankscope, Bankers’ Almanac, and authors' estimate.
Footnotes:
- 1/ Quasi-government entities from both Kuwait and Qatar own 21%, while the remaining shares are owned by a royal family member from Kuwait.
- 2/ The Kuwaiti government owns 9%.
- 3/ Represents share of different private corporations from the U.A.E. that are owned by Sheikh Mohammed bin Rashid Al-Maktoum.
- 4/ Part of Albaraka Banking Group (Saudi Arabia).
- 5/ Ahli United bank owns 33.3%, and the remainder (66.6%) is owned by Bank Mellin Iran and Bank Saderat in Iran.
Notes: * Islamic banks.

### Kuwait: Ownership Structure of the Domestic Banking Sector (2007) (In percent)
- National Bank of Kuwait: Private Domestic 100.0
- Kuwait Finance House*: Gov. 49.0; Private Domestic 51.0
- Gulf Bank: Private Domestic 100.0
- Commercial Bank of Kuwait: Private Domestic 100.0
- Al Ahli Bank of Kuwait: Private Domestic 100.0
- Burgan Bank: Gov. 6.0; Private Domestic 94.0
- Bank of Kuwait & The Middle East: Gov. 1.1; Quasi Gov. 12.0; Private Domestic 86.9
- Kuwait International Bank: Private Domestic 100.0
- Boubyan Bank: Gov. 20.0; Quasi Gov. 4.0; Private Domestic 76.0

Sources: Bankscope, Bankers’ Almanac, and authors' estimate.
Notes: * Islamic bank.

### Oman: Ownership Structure of the Domestic Banking Sector (2007) (In percent)
- Bank Muscat: Gov. 19.1; Quasi Gov. 24.2; Private Domestic 16.7; Foreign GCC 15.0; Foreign Non-GCC 25.0
- National Bank of Oman: Quasi Gov. 23.0; Private Domestic 42.1; Foreign Non-GCC 34.9
- Oman International Bank: Quasi Gov. 89.9; Foreign Non-GCC 10.1
- Bank Dhofar: Gov. 27.0; Quasi Gov. 63.0
- Oman Arab Bank: Quasi Gov. 50.0; Foreign Non-GCC 49.0 1/
- Bank Sohar: Gov. 14.5; Quasi Gov. 14.8; Private Domestic 70.7
- Al Ahli Bank: Quasi Gov. 7.0; Private Domestic 48.0; Foreign GCC 35.0; Foreign Non-GCC 10.0 2/

Sources: Bankscope, Bankers’ Almanac, and authors' estimates.
Footnotes:
- 1/ Represents the share of Arab Bank PLC incorporated in Jordan.
- 2/ Represents the share of Ahli United Bank in Bahrain.

### Qatar: Ownership structure of the Domestic Banking sector (end-2007) (In percent)
- Qatar National Bank: Gov. 50.0; Private Domestic 50.0
- Commercial Bank of Qatar: Private Domestic 100.0
- Doha Bank: Private Domestic 100.0
- Qatar Islamic Bank*: Private Domestic 100.0
- Ahli Bank: Quasi Gov. 60.0; Foreign Non-GCC 40.0 1/
- International Bank of Qatar: Quasi Gov. 70.0; Foreign Non-GCC 30.0 2/
- Masraf Al Rayan*: Private Domestic 100.0
- Qatar International Islamic Bank*: Private Domestic 100.0
- Al Khalij Commercial Bank: Quasi Gov. 18.0; Private Domestic 72.0; Foreign Non-GCC 10.0

Sources: Bankscope, Bankers’ Almanac, and authors estimates.
Footnotes:
- 1/ Represents the share of Ahli United Bank from Bahrain.
- 2/ Represents the share of National bank from Kuwait.
Notes: * Islamic bank.

### Saudi Arabia: Ownership Structure of the Banking Sector (2007) (In percent)
- National Commercial Bank: Gov. 70.0; Quasi gov. 10.0; Private domestic 20.0
- Samba Financial Group: Gov. 23.0; Quasi gov. 21.5; Private domestic 52.0; Foreign Non-GCC 3.5
- Al Rajhi Bank*: Gov. 9.9; Private domestic 90.1
- Riyadh Bank: Gov. 6.5; Quasi gov. 43.3; Private domestic 50.2
- Banque Saudi Fransi: Gov. 12.8; Quasi gov. 56.1; Private domestic 31.1
- Saudi British Bank: Quasi gov. 9.5; Private domestic 50.6; Foreign Non-GCC 39.9
- Arab National Bank: Gov. 10.8; Quasi gov. 49.2; Foreign Non-GCC 40.0
- Saudi Hollandi Bank: Gov. 9.6; Quasi gov. 50.5; Foreign Non-GCC 39.9
- Saudi Investment Bank: Quasi gov. 38.8; Private domestic 53.8; Foreign Non-GCC 7.4
- Bank Al-Jazira: Quasi gov. 94.2; Private domestic 5.8
- Bank AlBilad*: Private domestic 100.0

Source: Bankscope, Bankers’ Almanac, and authors' estimates.
Notes: * There is no Islamic bank license in Saudi Arabia and most banks offer a combination of conventional and Islamic banking products. These two banks offer only Islamic banking products.

### United Arab Emirates: Ownership Structure of the Banking Sector (2007) (In percent)
- Emirates Bank International 1/: Gov. 77.0; Private domestic 23.0
- National Bank of Abu Dhabi: Gov. 73.0; Private domestic 27.0
- Abu Dhabi Commercial Bank: Gov. 64.8; Private domestic 22.4; Foreign Non-GCC 12.8 2/
- National Bank of Dubai: Gov. 14.0; Private domestic 86.0
- Mashreqbank*: Private domestic 100.0
- Dubai Islamic Bank*: Gov. 30.0; Quasi gov. 4.0; Private domestic 65.0
- First Gulf Bank: Quasi gov. 40.0; Private domestic 60.0
- Union National Bank: Gov. 60.0; Private domestic 40.0
- Abu Dhabi Islamic Bank*: Gov. 10.0; Quasi gov. 3.0; Private domestic 58.0; Foreign Non-GCC 29.0
- Commercial Bank of Dubai: Gov. 20.0; Private domestic 80.0
- Emirates Islamic Bank: Gov. 77.0; Private domestic 23.0
- National Bank of Fujairah: Gov. 54.0; Private domestic 46.0
- Commercial Bank International: Gov. 5.0; Private domestic 95.0
- National Bank of Ras Al-Khaimah: Gov. 52.8; Quasi gov. 35.3; Foreign Non-GCC 11.9
- Dubai Bank*: Gov. 9.7 4/; Quasi gov. 20.4; Foreign Non-GCC 70.0 3/
- Sharjah Islamic Bank: Gov. 27.0; Private domestic 53.0; Foreign Non-GCC 20.0
- Bank of Sharjah: Gov. 15.5; Private domestic 68.5; Foreign Non-GCC 15.0
- National Bank of Umm Al Qaiwain: Gov. 30.0; Private domestic 70.0
- United Arab Bank: Quasi gov. 68.0; Private domestic 17.0; Foreign Non-GCC 15.0

Source: Bankscope, Bankers’ Almanac, and IMF staff.
Footnotes:
- 1/ Emirates Bank International and National Bank of Dubai completed merger on 17-10-2007 to become Emirates NBD.
- 2/ Abu Dhabi Ruling Family.
- 3/ Represent the share of Dubai holding LLC, which is owned by Sheikh Mohammed bin Rashid Al Maktoum.
- 4/ Through the share of government in Emaar properties, since Emaar owns 30 of Dubai Bank.
Notes: * Islamic bank.

*Source: IMF staff (appendices and tables as provided).*

### APPENDIX IV: BANKS AGGREGATED FINANCIAL STATEMENTS, 2005–09

### APPENDIX IV: BANKS AGGREGATED FINANCIAL STATEMENTS, 2005–09

### Bahrain — Balance Sheet (Table 14) and Income Statement (Table 15)
- Balance sheet (USD 000)
  - Total Assets: 23,731 (2005); 32,705 (2006); 38,707 (2007); 40,793 (2008); 41,052 (2009 (Q1))
  - Loans: 11,067 (2005); 14,945 (2006); 20,403 (2007); 23,060 (2008); 22,768 (2009 (Q1))
  - Securities: 4,423 (2005); 5,361 (2006); 5,410 (2007); 5,361 (2008); 5,042 (2009 (Q1))
  - Customers Deposits & CD's: 14,203 (2005); 18,150 (2006); 22,029 (2007); 26,276 (2008); 27,157 (2009 (Q1))
  - Total Shareholders' Equity: 2,502 (2005); 3,240 (2006); 4,473 (2007); 4,074 (2008); 3,964 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: 468 (2005); 622 (2006); 821 (2007); 786 (2008); 257 (2009 (Q1))
  - Net Interest Income: 1,027 (2005); 902 (2006); 1,049 (2007); 850 (2008); 382 (2009 (Q1))
  - Total Non Interest Income: 219 (2005); 257 (2006); 395 (2007); 277 (2008); 121 (2009 (Q1))
  - Operating Profit: 405 (2005); 524 (2006); 717 (2007); 703 (2008); 205 (2009 (Q1))
  - Net Profit After Taxes: 318 (2005); 280 (2006); 366 (2007); 312 (2008); 112 (2009 (Q1))

### Kuwait — Balance Sheet (Table 16) and Income Statement (Table 17)
- Balance sheet (USD millions)
  - Total Assets: 79,349 (2005); 103,587 (2006); 152,172 (2007); 163,245 (2008); 156,154 (2009 (Q1))
  - Gross Loans & Advances: 32,548 (2005); 41,892 (2006); 67,369 (2007); 78,810 (2008); 75,049 (2009 (Q1))
  - Securities Investments: 13,403 (2005); 14,722 (2006); 16,930 (2007); 16,260 (2008); 14,569 (2009 (Q1))
  - Customers Deposits & CD's: 50,852 (2005); 61,970 (2006); 88,133 (2007); 97,879 (2008); 93,426 (2009 (Q1))
  - Total Shareholders' Equity: 10,857 (2005); 13,091 (2006); 20,053 (2007); 17,076 (2008); 16,703 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: 2,879 (2005); 3,550 (2006); 4,245 (2007); 3,767 (2008); 939 (2009 (Q1))
  - Net Interest Income: 3,148 (2005); 2,846 (2006); 3,381 (2007); 4,464 (2008); 1,020 (2009 (Q1))
  - Tot. Non Interest Income: 1,027 (2005); 1,267 (2006); 1,718 (2007); 733 (2008); 198 (2009 (Q1))
  - Operating Profit: 2,827 (2005); 3,725 (2006); 5,260 (2007); 2,427 (2008); 789 (2009 (Q1))
  - Net Profit After Taxes: 2,248 (2005); 2,258 (2006); 2,687 (2007); 558 (2008); 402 (2009 (Q1))

### Oman — Balance Sheet (Table 18) and Income Statement (Table 19)
- Balance sheet (USD millions)
  - Total Assets: 14,547 (2005); 17,510 (2006); 21,996 (2007); 27,961 (2008); 26,919 (2009 (Q1))
  - Loans: 11,128 (2005); 12,691 (2006); 15,202 (2007); 19,380 (2008); 19,333 (2009 (Q1))
  - Securities: 978 (2005); 1,355 (2006); 2,053 (2007); 2,551 (2008); 1,666 (2009 (Q1))
  - Customers Deposits & CD's: 10,232 (2005); 11,610 (2006); 13,640 (2007); 17,450 (2008); 17,008 (2009 (Q1))
  - Total Shareholders' Equity: 1,938 (2005); 2,121 (2006); 3,285 (2007); 3,755 (2008); 3,566 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: 517 (2005); 787 (2006); 891 (2007); 1,053 (2008); 418 (2009 (Q1))
  - Net Interest Income: 404 (2005); 558 (2006); 616 (2007); 752 (2008); 250 (2009 (Q1))
  - Tot. Non Interest Income: 114 (2005); 229 (2006); 275 (2007); 301 (2008); 168 (2009 (Q1))
  - Operating Profit: 253 (2005); 451 (2006); 522 (2007); 584 (2008); 248 (2009 (Q1))
  - Net Profit After Taxes: 243 (2005); 406 (2006); 467 (2007); 471 (2008); 214 (2009 (Q1))

### Qatar — Balance Sheet (Table 20) and Income Statement (Table 21)
- Balance sheet (USD millions)
  - Total Assets: 401,523 (2005); 590,014 (2006); 923,513 (2007); 1,268,027 (2008); 1,264,134 (2009 (Q1))
  - Gross Loans & Advances: 101,515 (2005); 134,413 (2006); 232,548 (2007); 346,070 (2008); 362,900 (2009 (Q1))
  - Securities Investments: 54,538 (2005); 61,783 (2006); 74,386 (2007); 78,953 (2008); 102,600 (2009 (Q1))
  - Customers Deposits & CD's: 264,149 (2005); 398,483 (2006); 577,169 (2007); 754,911 (2008); 722,436 (2009 (Q1))
  - Total Shareholders' Equity: 76,639 (2005); 103,193 (2006); 154,721 (2007); 197,549 (2008); 195,721 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: (calculated components shown) Net Interest Income: 10,260 (2005); 14,272 (2006); 17,339 (2007); 26,181 (2008); 8,278 (2009 (Q1))
  - Banking Fees & Commissions: 3,370 (2005); 6,018 (2006); 7,387 (2007); 10,371 (2008); 2,480 (2009 (Q1))
  - Income from investments: 6,824 (2005); 5,352 (2006); 11,879 (2007); 11,260 (2008); 874 (2009 (Q1))
  - Operating Profit: 16,667 (2005); 22,353 (2006); 32,777 (2007); 41,810 (2008); 11,187 (2009 (Q1))
  - Net Income: 15,418 (2005); 19,811 (2006); 29,925 (2007); 36,525 (2008); 10,229 (2009 (Q1))

### Saudi Arabia — Balance Sheet (Table 22) and Income Statement (Table 23)
- Balance sheet (USD million)
  - Total Assets: 195,153 (2005); 221,183 (2006); 276,536 (2007); 340,872 (2008); 341,222 (2009 (Q1))
  - Loans: 101,567 (2005); 110,949 (2006); 134,578 (2007); 174,514 (2008); 165,180 (2009 (Q1))
  - Securities: 52,117 (2005); 53,969 (2006); 68,755 (2007); 75,572 (2008); 73,455 (2009 (Q1))
  - Customers Deposits & CD's: 140,236 (2005); 161,367 (2006); 195,509 (2007); 245,730 (2008); 251,344 (2009 (Q1))
  - Total Shareholders' Equity: 25,224 (2005); 30,904 (2006); 36,127 (2007); 46,019 (2008); 44,946 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: 6,572 (2005); 8,461 (2006); 7,709 (2007); 7,721 (2008); 2,021 (2009 (Q1))
  - Net Interest Income: 6,723 (2005); 8,005 (2006); 8,996 (2007); 10,343 (2008); 3,196 (2009 (Q1))
  - Tot. Non Interest Income: 2,801 (2005); 3,911 (2006); 2,557 (2007); 1,989 (2008); 516 (2009 (Q1))
  - Operating Profit: 7,165 (2005); 9,678 (2006); 8,325 (2007); 7,209 (2008); 2,359 (2009 (Q1))
  - Net Income: 7,183 (2005); 9,441 (2006); 8,059 (2007); 7,023 (2008); 2,276 (2009 (Q1))

### United Arab Emirates — Balance Sheet (Table 24) and Income Statement (Table 25)
- Balance sheet (USD millions)
  - Total Assets: 92,410 (2005); 126,729 (2006); 245,787 (2007); 291,467 (2008); 295,198 (2009 (Q1))
  - Loans: 56,263 (2005); 76,485 (2006); 144,254 (2007); 195,907 (2008); 201,359 (2009 (Q1))
  - Securities: 7,656 (2005); 10,362 (2006); 21,003 (2007); 23,344 (2008); 21,286 (2009 (Q1))
  - Customers Deposits & CD's: 64,353 (2005); 63,050 (2006); 117,932 (2007); 145,214 (2008); 145,717 (2009 (Q1))
  - Total Shareholders' Equity: 12,616 (2005); 16,106 (2006); 26,540 (2007); 30,532 (2008); 33,255 (2009 (Q1))
- Income statement (USD millions)
  - Total Operating Income: 3,695 (2005); 3,713 (2006); 6,106 (2007); 8,023 (2008); 2,275 (2009 (Q1))
  - Net Interest Income: 2,377 (2005); 2,641 (2006); 4,063 (2007); 6,175 (2008); 1,899 (2009 (Q1))
  - Tot. Non Interest Income: 2,011 (2005); 1,587 (2006); 2,769 (2007); 2,972 (2008); 688 (2009 (Q1))
  - Operating Profit: 3,465 (2005); 4,011 (2006); 5,743 (2007); 5,872 (2008); 1,602 (2009 (Q1))
  - Net Income: 2,907 (2005); 3,039 (2006); 4,420 (2007); 4,866 (2008); 1,335 (2009 (Q1))

*Sources: Banks' Annual and Quarterly Reports from Zawya; and authors' estimates (based on data for listed banks unless otherwise noted).*

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