Robust economy to boost GCC banks' earnings
Dubai, January 29, 2014
The GCC region's healthy economic growth prospects, supported by high oil prices, will help drive the demand for bank credit and thus enable local banks to boost their earnings for 2014, said a report.
The banks in the region had suffered during the 2008 global financial crisis, but have since gradually recovered. They benefit from adequate liquidity based on the highly liquid local deposit markets and improvements to corporate asset quality, stated Standard & Poor's Ratings Services in its report.
The robust regional economies and the healthy funding profiles have enabled these GCC banks to maintain growth since then, the report added.
According to S&P, the banks in the Gulf countries are well-positioned in a scenario where the US moves to gradually normalize its monetary policy.
"In our view, most banks in this key banking market are likely to have healthy funding profiles, with sound, high-quality capital, in 2014. This will enable them to continue to exhibit healthy credit growth funded by liquid local deposit markets," stated S&P in its report.
"Although low interest rates continue to limit Gulf banks' net interest margins, most lenders have seen a gradual decline in loan losses. We expect this to continue to support earnings growth in 2014, but by less than in previous years," it said.
The top ratings agency however warned that the Gulf region's dependence on the hydrocarbons sector remained a structural risk factor.
"Volatile commodity prices could have a significant impact on Gulf economies," it stated.
In our view, certain restructured exposures in Kuwait and the UAE could also generate downside risks, said the S&P in its report.
"However, we consider that the banks' strong capital levels largely mitigate these risks. As a result, we expect ratings to be broadly stable through 2014; of the 26 banks we rate in this region, 17 have a stable outlook," it added.-TradeArabia News Service