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ANALYSIS

Mena banks’ outlook 'in sharp contrast'

London, December 9, 2013

The outlook for banks across the Mena region signals a diverging trend, with stable prospects for GCC banks contrasting with unsettled conditions in rest of Mena region, a report said.

The outlook is split between the buoyant operating environment for banks in the Gulf countries, and the unsettled political and social environments that will weigh on banking operations in much of the rest of the Mena region, says Moody's Investors Service in a new publication: "2014 Outlook -- Middle East and North Africa (Mena) Banks".

Moody's says the outlook is stable for most GCC countries, given the rating agency's expectation of high fiscal surpluses and increased public spending, which will continue to underpin the banks' high loss-absorption capacity and sound funding and liquidity.

Moody's expects GCC banks' ratings to remain broadly stable across the region for 2014, with the rating agency's real GDP growth forecasts of between 3 per cent and 5 per cent in 2014 and oil prices remaining above fiscal breakeven levels (with the exception of Bahrain).

This growth will generate healthy surpluses for the region's governments, which will be channeled into the economy through widespread infrastructure spending, boosting corporate borrowing.

On the back of the aforementioned developments, Moody's expects robust average credit growth of more than 10 per cent across the GCC region, reflecting high growth rates in non-oil sectors. In addition, the buoyant GCC economies will lead to improving asset quality for the region's banks, hence lower provisioning expenses and higher profits, helping maintain strong capital buffers, despite the robust demand for credit.

Moody's also expects the GCC banks to continue to benefit from stable sources of funding from government and retail deposits, boosting their funding and liquidity.

In contrast, the outlook is negative for the rest of the Middle East (Jordan, Lebanon) and North Africa (Egypt, Morocco, Tunisia) where Moody's expects negative rating pressures for 2014. This reflects Moody's expectation of subdued business opportunities for banks caused by the unsettled political climate and rising pressures on asset quality from high unemployment rates and low consumer and business confidence.

While the rating agency forecasts real GDP growth between 2.0 per cent and 4.0 per cent in 2014, this growth is well below historical trends and likely below levels necessary to address social demands. In addition, the rating agency considers that weakness in European economies, a main trading partner, will also act as a drag on business activity, constraining credit growth.

Moody's also expects that governments in this part of Mena will continue to post budget deficits, with banks filling the gap in state funding by increasing their holdings of high-risk sovereign debt, while banks' low capital buffers will provide limited capacity to absorb shocks. While banks' liquidity profiles will face challenges, Moody's expects that funding from retail deposits and remittances from nationals working abroad will remain a credit strength. – TradeArabia News Service




Tags: Moody’s | GCC banks | Mena banks | Real GDP |

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