Muscat – The banking sector in the Gulf Cooperation Council (GCC) stands out as a relative bright spot among emerging markets (EMs) in 2024, according to S&P Global Ratings.

According to a new report released on Thursday, S&P anticipates that GCC banks and banking systems will display broad stability across key metrics in 2024. The rating agency forecasts that credit growth and profitability will remain strong for most GCC banks, although it expects a slight softening from 2023 levels.

‘In general, the region’s banks will continue to stand out as being well-capitalised, profitable, well-provisioned, and, for the most part, liquid,’ S&P said.

The UAE and Saudi banking systems are expected to lead growth in the region, with strong credit demand driven by a dynamic non-oil sector and economic diversification programmes. S&P also foresees robust credit growth in Oman.

However, the rating agency noted key risks to the outlook, including a potential worsening geopolitical environment, exposure to higher-risk jurisdictions such as Egypt and Turkey, oil price volatility, and real estate exposure.

S&P regards asset quality in the GCC banking sector as relatively strong, with not much expected deterioration, thanks to high levels of precautionary provisioning.

‘Leverage is contained, but still-high rates will keep the cost of risk elevated, particularly in banks with larger exposure to entities that do not depend on government cash flows,’ the agency noted.

According to S&P, the capitalisation levels of GCC banks will continue to support their creditworthiness in 2024.

‘Banks are predominantly funded through strong local deposit franchises, especially in countries like the UAE, Kuwait, and Oman. However, in Oman, one-third of customer deposits come from the government and their related entities. Liquidity strains could emerge in externally leveraged systems like Qatar and could rise where domestic funding is growing slower than credit,’ S&P added.