Banks in the Gulf region are set to see a gradual improvement in profitability on rising fee income and lower impairment charges, Fitch Ratings has said in a new report.
The rating agency said the outlook for most banks in the GCC/Middle East region was stable, largely driven by the probability of sovereign support.
Fitch said it expects loan growth to increase in 2013, as confidence improves and infrastructure projects come on stream, stimulating the local economies.
But the agency also warned that much also depends on the global economy and regional unrest.
Within the GCC, Fitch said it believes that problem loans have generally peaked and expects lower impairment charges in 2013, although significant legacy problems remain, notably in the UAE and Kuwait.
"Recoverability of these loans and related collateral values will depend on market developments. Non-GCC countries may suffer problems due to continuing political uncertainty, social unrest and economic difficulties," Fitch said.
Capital levels are not generally a constraint, and Fitch added that it believes that in most cases additional capital would be available from shareholders.
In recent years, most governments in the GCC have provided support to their banking systems through additional liquidity, and, in a few cases, capital injections.
Fitch said it expects such support to continue, as capital and liquidity could come under pressure if there is significant loan growth.
"GCC sovereigns are helping to stimulate their economies through government-sponsored infrastructure projects, taking advantage of their significant oil and gas revenues. Oil production is expected to be lower in 2013, but will nevertheless generate strong revenues for oil exporters," Fitch added.