March 15, 2021 banking

GCC banks face long climb to recovery: S&P Global

GCC banks are expected to see long-lasting adverse effects from last year's sharp recession triggered by the Covid-19 pandemic and low oil prices, according to a new S&P Global Ratings report.

Despite the recent rally in oil prices and brighter near-term outlook for economic recovery, the operating performance of GCC banks will continue to be constrained by the protracted recovery in key economic sectors and low interest rates, the report said.

'We expect banks' asset-quality indicators will continue to deteriorate and cost of risk to remain high as they start recognizing the true impact of 2020 and forbearance measures are lifted in second-half 2021,' said S&P Global Ratings credit analyst Mohamed Damak.

Given continued low interest rates, banks' profitability will remain low in 2021 and beyond, with some potentially showing losses this year.

Saudi and Qatar's banking sectors will be less impacted than those in the United Arab Emirates, Oman, and Bahrain, while in Kuwait the story will depend on the evolution of the fiscal impasse.

'That said, strong and stable capital buffers, good funding profiles, and expected government support should continue to support banks' creditworthiness in 2021,' Damak concluded.


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