Although lending by foreign banks to the region is much slower than in the boom years, the increase in loans in Q1 is a sign of stabilization. BIS data show that net lending from European banks to the MENA region crept up in Q1 2010, led by loans to Saudi Arabia and Qatar, which received US$8 billion and US$3 billion, respectively. We see it as no coincidence that these countries also account for the most significant lending growth in the GCC. The availability of foreign funds, along with continued government fiscal expansion, seems to have helped ease domestic credit conditions, support domestic liquidity and fuel a revival in equity markets early in the year. We expect that the pace of inflows cooled in Q2 2010 given the generalized correction in emerging and frontier markets and selloff in local markets, but on aggregate credit should continue to flow to those countries that have the strongest domestic demand, either private or government financed.
This is an excerpt of a longer Analysis available exclusively to RGE Clients, MENA Focus: Grasping for a New Normal for MENA Credit
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