Outlook for GCC banks is stable, says Moody’s

Muscat - 

The outlook for the GCC banks is stable overall reflecting strong financial fundamentals, particularly in the largest banking systems that provide resilience to profitability and loan quality challenges from slower economies, Moody’s Investors Service said.

Fiscal and geopolitical risks, however, continue to pose challenges for various countries in the region, Moody’s said in a report titled ‘Banks - Gulf Cooperation Council; 2018 outlook’.

Moody’s forecasts that real GDP growth in the region will pick up slightly to around two per cent in 2018 from a flat growth in 2017, as oil prices stabilise between US$50 and US$60 a barrel.

‘Although fiscal consolidation efforts in the region will persist, key regional infrastructure projects, such as UAE Expo 2020, World Cup Qatar 2022 and the Saudi National Transformation Program will support capital spending and credit growth which should expand by five per cent in 2018’, Moody’s said.

It said GCC 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 11-16 per cent range and problem loan coverage, at around 95 per cent plus across the region, is high’.

According to Moody’s, 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 Olivier Panis, a vice president and senior credit officer at Moody’s.

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

Individually, in the UAE, Saudi Arabia and Kuwait, which account for around 75 per cent of the GCC banking assets, the outlook is stable. However Bahrain and Oman are more weakly positioned in respect to their fiscal position, the ratings

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