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Thu 20 Oct 2016 01:50 PM

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Saudi, Qatar banks best placed to cope in low oil price era - Fitch

Ratings agency says Saudi Arabia and Qatar will continue to offer the 'soundest lending opportunities'

Saudi, Qatar banks best placed to cope in low oil price era - Fitch

Banks in Saudi Arabia and Qatar are better placed than Gulf Cooperation Council (GCC) peers to cope with an eventual deterioration in asset quality brought about by a prolonged period of weak oil prices, according to a new research note from Fitch Ratings.

The ratings agency said it expects that GDP will continue to grow in 2017 and 2018 across all GCC countries and forecasts a gradual rise in oil prices to $55 a barrel by 2018.

But Fitch's examination of the impact of lower for longer oil prices on asset quality across the region concluded that loss-absorption capacity in the Saudi banking sector ranks highest among GCC countries.

It also said that both Saudi Arabia and Qatar would continue to offer the soundest lending opportunities under that scenario, suggesting impaired loan ratios should increase more slowly in these countries than their peers.

The operating environment is a positive ratings factor for banks in Saudi Arabia, Qatar and the UAE, the agency said, adding that business opportunities are strongest in Saudi Arabia and the UAE, reflecting the countries' larger and more diversified economies.

"In Qatar, we are not expecting any significant cuts to government spending and numerous government-sponsored projects continue to provide profitable, low-risk, lending opportunities for banks," Fitch noted.

Relative to GCC peers, the operating environment has a neutral impact on bank asset quality in Kuwait, where Fitch said it expects little change to government spending patterns, while in Oman and Bahrain, it weighs negatively on asset quality reflecting the smaller scale of public-sector spending and indirectly fewer lending opportunities in those countries.

Fitch said loan-loss reserves at Kuwaiti banks represented 260 percent of impaired loans at end-2015, the highest GCC coverage ratio - meaning that banks could maintain full coverage of impaired loans if impairments grew by this amount.

It added in the research note: "GCC banks are profitable, reflecting high interest margins and low costs, and are capable of generating pre-impairment profits equivalent to at least 2.5 percent of gross loans each year. This ratio is a high 3.8 percent for Saudi banks, followed by 3.6 percent for UAE peers, signalling a strong ability to write new provisions, if required."

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