Robust regional economies and healthy funding profiles enable Gulf banks to maintain growth, says report
Standard & Poor’s Ratings Services said today that it considers banks in Gulf Cooperation Council (GCC) countries well-positioned in a scenario where the U.S. moves to gradually normalize its monetary policy.
Gulf banks suffered during the 2008 global financial crisis, but have since gradually recovered. They benefit from adequate liquidity based on the highly liquid local deposit markets and improvements to corporate asset quality. We expect the region’s healthy economic growth prospects for 2014, supported by high oil prices, to keep demand for bank credit high and enable local banks to increase their earnings.
In our view, most banks in the key banking markets in the Gulf region are likely to have healthy funding profiles, with sound, high-quality capital, in 2014. This will enable them to continue to exhibit healthy credit growth funded by liquid local deposit markets.
Although low interest rates continue to limit Gulf banks’ net interest margins, most banks have seen a gradual decline in loan losses. We expect this to continue to support earnings growth in 2014, but by less than in previous years.
The Gulf region’s dependence on the hydrocarbons sector remains a structural risk factor. Volatile commodity prices could have a significant impact on Gulf economies. In our view, certain restructured exposures in Kuwait and the United Arab Emirates (UAE) could also generate downside risks. However, we consider that the banks’ strong capital levels largely mitigate these risks. As a result, we expect ratings to be broadly stable through 2014; of the 26 banks we rate in this region, 17 have a stable outlook.
Weber Shandwick MENA
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