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Middle East

Bonds, loans drive GCC asset growth

The GCC’s banking sector has, despite higher lending costs, seen a steady growth in the loan markets. As a result of this the sector has also seen a small increase in total assets, which has in turn been supported by the region’s bond markets.

Jun 16, 2016 // 4:51PM

Across the GCC’s banking sector over the first quarter of this year there has been a steady increase in loan growth to US$809bn, up 8.7% year-on-year from Q1 2015 according to Global Investment House’s sector quarterly report on GCC banking.

This was despite an increase in the cost of funding, which according to the research paper rose by 28bp year-on-year from Q1 2015.

It noted that the cost of funding in the loan markets has increased for local lenders across the GCC, which saw average yields rise by 14bp.

“Although there has been a slight impact from the cost of funding on the growth of the loan markets in the GCC, we have yet to see a significant change,” said Nick Vozianov, Director of Syndicated Finance at ING.

“It is difficult to tell what impact the change in pricing has had on loan volumes across the region,” he added.

The research paper also added that overall assets of GCC banks rose, partly due to loan growth, by 5.6% year-on-year to US$1.3tn in Q1 2016.

The bond market in the region is now operating parallel to the loan markets according to Vozianov.

“There is a growing link between the bond and loan markets, and the bond market now compliments the loan market.”

Despite boosting the loan space in the GCC, both markets typically appeal to different lenders in the region.

“The bond market has a wider investor base, which includes institutional investors. We have only just begun to see this class of lender become active in the loan markets,” said Vozianov.

He added that the activity on the bond market has not spoilt the performance of the loan markets, noting that borrowers, including both local and international banks in the region, are now planning for both bond and loan deals.

Middle East

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