S&P Says Gulf Banks Face Long Climb to Recovery After 2020 Shock

Lenders in the Gulf Cooperation Council are set to have long-lasting negative effects from last year’s pandemic-driven downturn and lower oil prices, according to S&P Global Ratings.

“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,” S&P analysts including Mohamed Damak wrote in a report Sunday.

Last year’s twin shocks led governments to slash spending and direct banks to lend at lower rates and delay repayments.

S&P Says Gulf Banks Face Long Climb to Recovery After 2020 Shock

S&P expects asset-quality indicators to continue deteriorating while the cost of risk is expected to remain high, as lenders start to recognize the actual impact of 2020 and forbearance measures are lifted during the second half.

More from S&P:

  • Lending growth is seen muted in all GCC countries except Qatar and Saudi Arabia as Saudi mortgage lending expands and Qatar’s government projects boost growth.
  • Strong capital buffers, funding profiles, and anticipated government support will continue to support banks’ creditworthiness this year.
  • Measures implemented by the region’s central banks are supportive of liquidity but don’t eliminate the credit risk from balance sheets.
  • A recovery in global aviation is expected to be weak in 2021-2022, while demand for GCC real estate will “remain subdued.”
  • Asset quality is expected to deteriorate further across the board, and nonperforming loans will rise.
  • A second wave of industry consolidation could start after the full impact of the weaker operating environment on banks becomes visible. Round two could be more opportunistic and might involve activity across different GCC countries.

©2021 Bloomberg L.P.

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