Mubasher: The profits of banks in GCC countries will decrease in 2020 due to the economic contraction amid the coronavirus (COVID-19) pandemic and lower oil prices, Moody's Investors Service said in a report on Monday.
Moody's referred that despite their low profits in 2020, the banks in the GCC region have adequate capital that will support their solvency in the crisis.
The rating agency forecast that the real non-hydrocarbon GDP in the GCC region will retreat between 3.5% and 5% in 2020, affecting the banks' ability to lend and lowering loan demands between 0% and 5%.
Hence, the banks' interest income will decline due to interest rate cuts and rising customer defaults.
"The banks will feel the effects through rising nonperforming loans, requiring higher provisioning charges, which are expected to increase significantly from $11.7 billion recorded for Moody's rated banks for 2019," VP-Senior Credit Officer at Moody's, Nitish Bhojnagarwala, said.
A decline in the banks' income and a rise in provisions will lead to a drop in net profits of over 20% in 2020.
However, the GCC banks rated by Moody's will be able to absorb the losses because of their aggregate net income of nearly $34.7 billion in 2019.
The rating agency concluded that the banks' capital will slightly slip but will remain able to resist the COVID-19 economic impact amid a lower asset base and low cash dividend distribution.