GCC banks to maintain stable financial profiles in 2020: S&P

Banks in the GCC should maintain stable financial profiles in 2020, barring any major increase in geopolitical risk or a sharp fall in oil prices, S&P Global Ratings said in a recent report.

“In our view, GCC banks will successfully navigate a less-than-favorable macroeconomic environment in 2020 supported by their solid financial profiles,” it noted.

However, GCC countries' growth will remain below that seen during the era of triple-digit oil prices and due to global slowdown.

“We therefore expect net lending expansion to remain flat, in the mid-single digits on average. At the same time, we expect cost of risk will stabilize at about 1 percent of total loans, due in part to the stronger buffer of provisions that GCC banks accumulated over the past few years and linked to International Financial Reporting Standards (IFRS) 9,” the report pointed out.

Furthermore, S&P expects that GCC banks' profitability will deteriorate “slightly or stabilize”.

Profits will likely be negatively affected by the shift in global monetary policy toward lower interest, the report added.

The ratings agency also expects the amount of problematic assets, which are defined as IFRS 9 stage 2 and 3 loans, to remain stable.