Mubasher: The “Stable” outlook the banking systems in the Gulf region indicates to improving operating conditions in the banks, weakening but still solid loan performance and strong capital buffers, according to a recent report by Moody's Investors Service.
"Current oil prices will support increased government spending, and stimulus packages such as UAE's Expo 2020, the Saudi National Transformation Plan and Qatar FIFA 2022, will underpin banks' stable financial performance," Moody's vice president and senior credit officer Nitish Bhojnagarwala said.
Moody’s expected that increasing oil production after output cuts in 2017-2018 will drive real gross domestic product’s (GDP) growth to an average of around 3.3% in 2019 when compared to 1% in 2017. This step will ease fiscal pressures in addition to keeping government spending plans on track.
Banks in Kuwait, UAE, Qatar, and Saudi Arabia are forecast to remain resilient, while fiscal pressures will weigh on Omani and Bahraini banks, as oil prices will remain below the fiscal breakeven level in these two GCC states, Moody’s added.
“Credit growth will recover as government spending underpins economic activity and spurs private-sector growth. Lending growth in 2019 will range from 4% in Saudi Arabia to 6%-7% in Kuwait, Oman, and Bahrain. Lending to construction and real-estate sectors will increase,” Moody’s said.
The rating agency forecasts nonperforming loans (NPLs) to stand at a still good 3% of total loans at the end of 2019.
“Profitability pressures are expected to ease, with net income to tangible assets remaining strong at around 1.5% to 2.1%. Banks have adapted their cost base to the slowing economic environment, maintaining strong efficiency. Consolidation will ease competition and also alleviate some pressure on profitability,” Moody’s noted.