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GCC banks on recovery path in 2022, says S&P report

12 Jan 2022 S&P GCC banks By OUR CORRESPONDENT

Muscat – Gulf Cooperation Council (GCC) banks are set to benefit from a regional economic recovery this year amid higher oil prices, still supportive government spending, and normalising non-oil activity, S&P Global Ratings said in a new report.

“We expect banks’ asset quality indicators to deteriorate only slightly as regulatory forbearance measures have helped the corporate sector to deal with the negative effects of the pandemic,” said S&P Global Ratings credit analyst Mohamed Damak.

“In our view, the nonperforming loan ratio will rise in the next 12-24 months without exceeding 5 per cent, compared with 3.7 per cent at September 30, 2021,” Damak added.

Furthermore, GCC banks should benefit from policy rate hikes in 2022 by the US Federal Reserve, which will prompt a similar reaction from GCC central banks given their currency pegs.

“Lower global liquidity is likely to have a limited impact on GCC banks thanks to their strong net external asset positions or limited net external debt positions. Qatar is more vulnerable than other countries due to its large and expanding net external debt position but there are some mitigants,” he said.

“Moreover, strong capitalisation and government support will continue to reinforce regional banks’ creditworthiness,” Damak concluded.

S&P expects the Brent oil price to average US$65 per barrel in 2022. ‘Improving economic sentiment and higher hydrocarbon production should lead to accelerated economic growth in the region. However, an uncontrolled resurgence in the pandemic that reduces mobility could hamper the global and regional economic recovery,’ the report said.

Bahrain and the United Arab Emirates are the only two countries where nominal GDP at year-end 2022 will remain slightly lower than 2019.

This is because of the weight of the hospitality and real estate sectors in their economies, the report further said.

Residential mortgage lending continues to drive strong growth in Saudi Arabia and Kuwait is also seeing expansion, mainly spurred by retail lending and the oil sector.

The UAE lending growth remains sluggish but S&P expects an acceleration as economic sentiment improves. “Bahrain’s double-digit growth is explained by acquisitions and expansion outside the country while Oman is recovering slowly,” the S&P report said.

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