Thursday 28 March 2024
 
»
 
»
Story

GCC banking ‘resilient to economic pressures’

DUBAI, December 7, 2016

Moody's Investors Service's stable outlook for 2017 on the banking sectors of the Gulf Cooperation Council (GCC) reflects the rating agency's expectation of their resilience to persistent economic and funding pressures.

Moody's presentation, entitled "Banks - Gulf Cooperation Council 2017 Outlook - Stable Outlook Reflects Resilience to Persistent Economic and Funding Pressures" expresses Moody's expectation of how bank creditworthiness will evolve in the GCC over the next 12-18 months.

"While operating conditions for banks in the Gulf Cooperation Council will remain challenging, the stabilisation of oil prices -- albeit at a low level -- and resilient non-oil sectors will moderate pressures on the banking sector from slowing economic growth, fiscal reforms and spending cuts," said Olivier Panis, a vice president at Moody's.

Asset quality is likely to remain solid across the GCC, with the rating agency forecasting non-performing loan ratios to remain at 3-4 per cent in 2017.

Moody's notes that banks in the GCC still have high single borrower and sector concentrations. Despite the formation of new problem loans as a result of slowing economic activity and tightening liquidity in the region-- particularly in the construction, real estate and small and mid-sized enterprise (SME) segment - the ongoing resolution of significant legacy exposures in some systems and better collateral will moderate the impact.

Loss-absorption buffers are also likely to remain robust with tangible common equity (TCE) ratios remaining broadly in the 12 per cent-16 per cent range and problem loan coverage high at around 95 per cent+ across the region.

In Moody's view, profitability will remain sound, although it is likely to decline slightly as a result of slowing credit growth. The rating agency expects net interest margins to remain at around 2-3 per cent, with net income/tangible assets at around 1.5-2.0 per cent.

Bank funding profiles are also likely to remain robust, anchored by stable deposits representing 75-90 per cent of non-equity funding, but it will remain pressured by decelerating deposit growth, which has slowed to 1.2 per cent on average across the GCC systems as of June 2016 (versus 3.6 per cent in 2015 and 9.8 per cent in 2014) below the level of credit growth (9 per cent year on year as of June 2016).

Lower oil revenues are leading to a decline or slowdown in government and related entity deposits and lower economic growth also means broad reductions in corporate and retail deposit inflows. However, recent international bond and Sukuk issuances from Abu Dhabi, Oman, Qatar and Saudi Arabia have helped to moderate funding pressures, and most regional banks maintain material levels of liquid assets, eligible as collateral at central banks in case of need.

Moody's also expects that GCC governments' willingness to provide support to banks in case of need remains high, even if their fiscal capacity is facing pressure, which could result in more selectivity in their support to banks. – TradeArabia News Service




Tags: Moody’s |

More Industry, Logistics & Shipping Stories

calendarCalendar of Events

Ads