Gulf banks Q2 results seen lower on bad loans

* Higher provisions seen

* Concerns persist over Saudi groups' exposure

* Results also seen hit by lower fee, interest income

By Nicolas Parasie

DUBAI, July 6 (Reuters) - Gulf Arab banks will post lower second-quarter results as the cost of the credit crisis mounts and worries persist about exposure to troubled Saudi conglomerates, analysts said.

Two of the region's biggest banks, Dubai-based Emirates NBD ENBD.DU and National Bank of Abu Dhabi NBAD.AD NBAD.AD, are likely to see quarterly net profit decline by 27 percent and 36 percent, respectively, according to analysts' estimates.

"The fundamental banking picture in the UAE may not look too rosy for the next 12-18 months," said analysts at J.P. Morgan in a recent research note.

Emirates NBD, the largest bank in the region by balance sheet size, already signalled that earnings growth would be under pressure from a rise in non-performing loans. [nLM113434].

Deeper concerns linger over banks' exposure to two troubled Saudi conglomerates, Saad Group [SAADG.UL] and Ahmad Hamad Algosaibi & Bros (AHAB).

The high-profile Saudi cases and the bursting of Dubai's property bubble are two examples of how the credit crisis has hit the energy exporting region and both are expected to force banks to make provisions.

Banks face billions of dollars in potential losses to the Saudi groups. Banks, however, may sidestep provisioning in the second quarter, deferring it to later in the year.

"The reality is that most management teams here don't really have the experience to deal with (Saad and Algosaibi) -- this is really a test for them," a Dubai-based analyst said.

DECLINES EXPECTED

Most Saudi banks are expected to post profit declines with Riyad Bank 1010.SE quarterly net profit seen declining by around 34 percent, according to forecasts by EFG Hermes and Bakheet Investment Group [nL5613857].

For Samba Financial Group 1090.SE, analysts surveyed expect a fall of 6.65 percent, on average. But Al-Rajhi Bank 1120.SE, the region's biggest bank by market capitalisation, is seen posting profit gains of 6.35 percent, on average.