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‘GCC banks face earnings shock this year amid virus outbreak’

9 Apr 2020

In 2020, we expect slower organic and non-organic growth, with Islamic and conventional banks seeing similar rates of 2-3 per cent: S&P

 

Conventional and Islamic banks in the GCC countries will see significantly reduced revenue and credit growth in 2020 amid COVID-19 pandemic, according to S&P Global Ratings.

The COVID-19 pandemic will halt growth at GCC banks this year as they focus on preserving asset quality rather than business expansion, S&P said in a new report released on Tuesday.

“The sharp drop in oil prices and measures implemented by regional governments to contain transmission of the coronavirus will take a toll on important sectors such as real estate, hospitality, and consumer-related. Under our base-case scenario, we assume that these measures will be relatively short lived and forecast a gradual recovery in non-oil activity from third-quarter 2020,” said S&P Global Ratings credit analyst Mohamed Damak.

“However, the severe shock could cause irreparable damage to some parts of the non-oil economy. Furthermore, if the recovery takes longer than we expect, GCC banks could feel greater pressure,” Damak added.

According to S&P, the sharp decline in oil prices, accelerated real estate price corrections in some GCC markets, and drop in vital non-oil economic sectors will pressure banks’ earnings, but it shouldn’t be a capital event for most at this time.

‘Stimulus and support measures from GCC governments will help banks navigate the challenging environment but likely not resolve structural problems unless we see stronger intervention,’ the ratings agency said.

Forecasting a significant slowdown in lending growth at GCC banks, S&P said, ‘In 2020, we expect slower organic and non-organic growth, with Islamic and conventional banks seeing similar rates of 2-3 per cent.’

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