GCC banking sector has entered 'protracted period of contraction' - BMI Research

BMI research forecasts asset growth to slow to 6% year-on-year until 2020
GCC banking sector has entered 'protracted period of contraction' - BMI Research
By Sarah Townsend
Sun 24 Jul 2016 06:18 PM

The GCC banking sector has entered a period of contraction with asset growth set to slow to 6 percent year-on-year between now and 2020, according to new research.

It represents a significant decline from an average of 17 percent year-on-year over the past decade, as banking sectors across the Gulf suffer from fiscal retrenchment brought about by the prolonged slump in global oil prices, BMI Research notes.

The Fitch Group company’s latest GCC banking report states the sector has entered a “protracted period of slower growth”.

GCC banks will be hit on two fronts, it said: governments will continue to draw on funds deposited in their domestic banking sectors to cover large fiscal deficits, while declining government spending will serve to create fewer lending opportunities. 

However, the slowdown will be less pronounced in Lebanon, Jordan and Egypt, with the average growth rate declining from 10 percent between 2006 and 2015, to 6 percent in the next four-to-five years, it says.

Within the GCC, the slowdown will be unequal. Qatar and Kuwait possess greater financial buffers to fund large-scale government projects, and are expected to hold up better than Oman and Bahrain, which are most at risk because of their government’s low reserves and reliance of domestic banks on public deposits.

BMI Research forecasts Brent to trade at $60 per barrel on average over the next five years, compared to $102 per barrel between 2010 and 2014.

The report said: “Commercial banks across MENA have entered a protracted period of slower growth. In the GCC, fiscal retrenchment amid low oil prices is impacting deposit and lending growth, while liquidity is tightening.

“In Egypt, Lebanon and Jordan, political instability and lacklustre macroeconomic environments will continue to weigh on banks' performances.

“Throughout the region, governments will issue domestic debt to cover rising or recurring fiscal deficits, providing some respite for their respective banking sectors.

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