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GCC banks’ outlook stable says Moody’s

Bahrain Business
Thu, 07 Dec 2017
By Avinash Saxena

MANAMA: The outlook for GCC banks is stable overall reflecting strong financial fundamentals, says Moody’s Investors Service.

The ratings agency said in a report that the largest banking systems in particular had more resilience to profitability and loan quality challenges.

Fiscal and geopolitical risks, however, continue to pose challenges for various countries, it said.

Moody’s forecasts real GDP growth in the region will pick up slightly to around two per cent next year from zero this year, as oil prices stabilise between $50 and $60 a barrel.

Although fiscal consolidation efforts in the region will persist, key regional infrastructure projects will support capital spending and credit growth which should expand by 5pc in 2018.

Banks’ capital levels will remain broadly stable and well above Basel III minimum regulatory requirements, in a context of modest credit growth in 2018.

Combined with high loan-loss reserves, this provides banks with strong loss-absorption capacity.

Tangible Common Equity ratios will remain broadly in the 11pc-16pc range and problem loan coverage, at around +95pc across the region, is high.

Low cost and stable deposit based funding, combined with elevated liquidity buffers will remain a credit strength of GCC banks.

“The strong financial fundamentals in the Gulf banking systems makes the industry more resilient to lower profitability and weaker loan quality issues,” said Moody’s vice president and senior credit officer Olivier Panis.

“Nonetheless, fiscal and geopolitical risks pose challenges in Qatar, Oman and Bahrain.

“Individually, in the UAE, Saudi Arabia and Kuwait, which account for around 75pc of GCC banking assets, the outlook is stable,” he added.

Moody’s expects problem loans for the region’s banks to edge higher in 2018 following sluggish economic activity in 2017, and banks remain vulnerable to high borrower and sector loan concentrations, as well as uneven disclosure in the corporate sector.

Profitability will also decline slightly, albeit from high levels, as low credit growth will weigh on interest income and on fees and commissions, it said.