S&P Global Ratings have published a key annual publication titled ‘GCC Banks: Lower Profitability Is Here To Stay’. The report discusses the uphill struggle rated banks in the GCC face in the next 18 months due to the extended nature of the economic recovery and gradual withdrawal of regulatory forbearance measures.
S&P Global Ratings’ also express that a base case is that a Covid-19 vaccine will be widely available by around mid-2021 and that the oil price will stabilise at an average of $50 per barrel. They also foresee that the GCC economies will expand by an average of 2.4% in 2021, compared with a contraction of 5.6% in 2020. Without these glimmers of light, things could be even worse for GCC banks.
Key Takeaways from the report include:
- A protracted economic recovery in the Gulf Cooperation Council (GCC) countries means that lending growth will remain muted for the next 12-24 months at least.
- Without additional support measures, S&P expect the deterioration in GCC banks’ asset quality to accelerate as regulatory forbearance measures end.
- GCC banks’ profitability will continue declining, with a few of them reporting losses because of their exposure to high-risk asset classes or under-provisioning.
- On the positive side, most GCC banks have good funding profiles and strong capitalisation that should support their creditworthiness in 2020-2021.
- Yet S&P believe that GCC banks’ reduced profitability is longer lasting due to the nature of their funding structures and lower revenues. This could push them to consolidate or embrace fintech solutions to reduce costs.
For more information and to read the full report click here.