By Staff writer
Ratings agency S&P says weakened economic performance to weigh on performance of region's banks
Banks operating in the Gulf will see their performance weighed on by the weak economic environment this year and 2017, according to S&P Global Ratings.
The rating agency said in a new report that it was expecting a more pronounced slowdown of the growth of both conventional and Islamic banks in the region.
Asset growth started to moderate in 2015, reaching 7 percent for Islamic and 5.7 percent for conventional banks in the GCC in 2015, compared to 12.3 percent and 9.6 percent, respectively, in 2014.
“In our base-case scenario, we assume that growth will drop to around 5 percent for both types of banks in 2016 as governments strive to restore their fiscal sustainability through a mix of spending cuts and revenue-boosting initiatives,” said S&P in the statement.
The continued drop of oil prices since June 2014 has brought the region’s governments under fiscal pressure and it reduced growth opportunities for their banking systems.
“In our view, the economic slowdown will be more pronounced in Saudi Arabia and the United Arab Emirates (UAE),” S&P said.
It added that Qatar and Kuwait appear to be less affected with spending expected to remain buoyant in Qatar for the preparation of the World Cup 2020, while the government in Kuwait is planning to boost its investment spending and allocate a significant share of new project financing to Islamic banks.
S&P said it forecasts oil prices will reach $50 per barrel in 2018, with unweighted average economic growth of the six GCC countries of 2.1 percent in 2016 and 2.5 percent in 2017.
Growth opportunities for Islamic banks are expected to be impacted by Saudi Arabia’s expected spending cuts by nearly 15 percent and the slowing real estate sector in the UAE.
However, the agency said the Islamic banks have built sufficient buffers to navigate through the new environment.