Dubai – Mubasher: Most banks operating in the GCC remained resilient despite ongoing economic challenges, Moody’s said in a new report.
The banking sector is likely to benefit from the ongoing consolidation drive and government spending on infrastructure.
“Most of the GCC banks have a stable outlook, and broadly on the economic front, we expect things to recover on the back of higher spending plans so that will support the growth of the banking systems,” said Nitish Bhojnagarwala, a senior credit analyst at Moody’s.
Moreover, the overall gross domestic product (GDP) of GCC nations is expected to increase to 2.1% during 2019, from 2% in 2018.
Bhojnagarwala pointed out that the consolidation drive in the GCC will also support the banking sector and could help address issues such as fragmentation in different markets, in addition to boosting asset growth and profitability.
Mergers among banks in the GCC will gain traction as banks seek to expand their balance sheets and enhance their positions in facing challenging conditions.
Abu Dhabi Commercial Bank (ADCB) previously announced that the UAE was to see a powerful new banking group after its merger with Union National Bank (UNB) and after acquiring Al Hilal Bank. The merger will reinforce ADCB's position as the third largest financial institution in the UAE and become the fifth largest lender in the GCC.
The new entity’s total assets are expected to reach around AED 420 billion ($114 billion).
Similarly, Saudi Arabia's National Commercial Bank plans to merge with Riyad Bank, with more mergers expected to take place in the region in the coming period.
Moody's noted that total global sukuk issuance will remain flat, ranging between $120 billion to $130 billion in 2019.
As for the UAE, budget spending will increase by 3.7% in 2019, compared to the year before.
Government spending, especially on infrastructure in the UAE, Saudi Arabia, and Kuwait, will support economic activity and credit growth for the banks.
The agency expects lending growth in the region to range from 5% in Saudi Arabia and Kuwait to between 6% and 7% in the rest of the Gulf nations.
