S&P forecasts steady growth for Gulf banks

Rating agency says region's banking sector is likely to see strong bank lending in 2013
S&P forecasts steady growth for Gulf banks
By Andy Sambidge
Sun 24 Mar 2013 05:24 PM

Gulf banks will likely continue their steady recovery from the global financial crisis this year, aided by healthy economic growth high oil prices, Standard & Poor's said on Wednesday.

S&P said it forecast average 4.6 percent GDP growth in the GCC for 2013 which should keep demand for bank credit high and expand banks' earnings.

"We believe strong bank lending on the back of corporate and infrastructure growth will help expand revenues of banks in Saudi Arabia, and Qatar," said Standard & Poor's credit analyst Timucin Engin.

"Specifically, we expect average lending growth to remain above 10 percent level for Saudi Arabia."

S&P added that in Kuwait, the UAE, and Bahrain, however, which have seen a less pronounced rebound in growth, it saw a slower pick-up in lending.

"Yet, loan losses are gradually declining at banks in these countries because they cleaned up their balance sheets between 2008 and 2012. This should continue to foster a recovery in profitability in the region, albeit at a slower pace than in recent quarters," said Engin.

Despite some differences between individual countries, S&P said it expects Gulf banks' interest margins and cost-to-income ratios will remain stable over the coming quarters, and that credit losses will continue to fall, although at a slower pace than in previous years.

This should ultimately translate into healthy profit growth for Gulf banks, it added.

The rating agency also said banks are likely to use their strong capitalization to continue to strengthen their market positions internationally.

As European banks are shedding assets in the Middle East and North Africa (MENA) to shore up their balance sheets in the aftermath of the financial and sovereign crises, well-off Gulf banks in GCC are taking their place.

In 2012, there was a sharp rebound in acquisitions by some of the larger Gulf banks, especially in Turkey and Egypt, taking advantage of prices that were significantly lower than before the crisis.

"We expect the trend to continue this year," added S&P.

Engin noted: "We see some downside risks for banks, not least from the region's dependence on oil prices and structural political risks, particularly stemming from Iran.

"However, we think favourable economic conditions and the banks' sound capital and funding positions will outweigh these risks. For this reason, the outlook is stable on 23 of the 26 banks we rate in this region and we expect the ratings will stay broadly stable through 2013."

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Last Updated: Thu 26 Jan 2017 01:27 PM GST

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