MORE than two-thirds of Gulf banks reported an increase in unpaid loans in the first three months of the year and more defaults are likely as oil-dependent governments slash spending to adjust to lower crude prices.

After several years in which banks’ profits jumped thanks to the region’s petrodollar boom, the oil markets’ two-year malaise is taking its toll. New global accounting standards from 2018 will make lending even harder.

“The days of double-digit profits and expansion plans are gone,” said one United Arab Emirates-based banker. “Now, it’s all about single-digit growth and controlling costs as bad loans are going to keep getting higher. It’s the new normal.”

Two of the region’s largest banks show how tough things have become.

National Commercial Bank, Saudi Arabia’s largest bank by assets, put aside 58.8 percent more money to cover bad loans during the quarter, partly due to delays in government payments to its customers. The bank has close links to the government and construction giant Saudi Binladin Group, which like many building companies, has been hit by a slump in the building sector as the state slows spending.

One of the most visible signs of the slowdown is the King Abdullah financial district in Riyadh, where gleaming tower blocks are still unfinished a year after they were supposed to be completed.

National Bank of Abu Dhabi, Abu Dhabi’s largest bank by assets, reported 73.3 percent more defaulted loans over the same period. Small and medium-sized businesses are struggling as well as larger firms such as Al Jaber Group, with interests spanning construction and retail to aviation.

Many indebted small business owners have fled abroad. Banks lost around US$1.4 billion in the year to November this way, a senior banking official has said, although the head of the UAE banking federation said this week more were now renegotiating. (SD-Agencies)