The financial profiles and performance of GCC banks will stabilize by mid-2018 after two years of significant pressure, S&P Global Ratings said in a recent report.
The rating agency maintained a stable outlook for majority of the banks except in Qatar, noting that banks in the region “will have recognized most of the impact of the softer economic cycle on their asset quality by mid-2018”.
However, S&P expects the profitability of the banks to stabilise at a lower level than historically, underpinned by an increased cost of risk and the introduction of value-added tax (VAT).
The liquidity of Gulf banks improved over 2017 with no significant change expected in 2018, the report said, adding continued debt or sukuk issuance by governments will absorb some of the liquidity without a major change in bank risk appetite.
Meanwhile, lending growth is expected to remain muted, as lower crude prices result in economic slowdown and reduced growth opportunities for banks.
The report forecasted unweighted average economic growth of 2.5 percent for the six GCC countries in 2018-2019, less than half the growth in 2012, as oil prices stabilize at about $55 per barrel in 2018 and 2019.
Private sector lending growth is expected to reach 3 to 4 percent in 2018-2019 from 2.6 percent on average in the first nine months of 2017, supported by initiatives such as Dubai Expo 2020, Saudi Vision 2030, Kuwait’s Vision 2035 and the Qatar World Cup 2022.
However, “increase in geopolitical risks and ensuing delays of some of the above mega initiatives could severely affect its base-case scenario,” S&P said.
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