GCC banking system outlooks stable as oil prices help economies rebound
The outlooks for the banking systems of Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Oman, and Bahrain have changed to stable from negative, as operating conditions improve after the pandemic, Moody’s Investors Service said in reports.
“We have changed banking outlooks in Gulf Cooperation Council states as the jump in oil prices is boosting economic activity and economies are recovering after the coronavirus shock,” said Nitish Bhojnagarwala, VP-Senior Credit Officer at Moody’s. “Non-oil activities including tourism will also contribute to the improvement in some areas.”
Saudi Arabian banks will see increasing profitability and accelerating credit growth as high oil prices boost the economy. The pick-up in lending growth will partly offset pressure on banks’ loan quality as central bank loan repayment deferral programs end. The stable outlook also captures our expectation that the government’s capacity to support banks in a crisis will remain intact.
Banks in Oman and the UAE will maintain steady profitability and solid capital buffers. Bahrain banks now have resilient funding, liquidity, and capital positions after the coronavirus economic shock, and we expect a sustained economic rebound will help to restore banking profitability close to pre-pandemic levels over the next 12 to 18 months. In Qatar, increased tourism around the FIFA World Cup to be held there this year will also support the economy.
Kuwait’s non-oil economy, where the banks do most of their business, will continue its recovery. We expect GDP growth in the non-oil sectors of 4% in 2022 and 2023 after 5% in 2021. Domestic loan quality will remain sound as businesses and households resume normal activities after the pandemic.