The combined profits of Arab banks in 2009 will take up to a 40% hit due to continuing liquidity problems, according to Adnan Ahmed Yousuf, chairman of the Beirut-based Union of Arab Banks (UAB), who urged local banks to take measures to deal with the global financial crisis, including admitting sovereign wealth funds (SWFs) and other long-term shareholders to strengthen financial base and regain investors’ confidence, as well as take action to support commercial banks and ensure the flow of liquidity into local markets.  Arab banks recorded strong performances in 2007, with combined assets surging from $1.268 billion at the end of 2006 to a record $1.691 billion (an increase of about 33%). 


The global economic crisis and subsequent liquidity crunch, coupled with decreased oil prices, will shelve of some projects in the region.  Yousuf predicted that the profits of Arab banks will to decline by 20-40%.  “Bank credit is projected to contract by 10-30% during 2009 after surging by at least 60% in the past few years.  Normally, any decline in interest rates by banks [would] spur credit activity.  But the problem is not only in the shortage of liquidity, but also in the more careful lending policies adopted by banks, at least during the first quarter of this year, until the global situation becomes clearer.  Liquidity is also affected by lower foreign capital flow,” said Yousuf.