GCC banks expected to stabilise in 2019 – S&P

The profitability of banks in the Gulf Cooperation Council (GCC) is expected to stabilise next year but lending growth is forecast to remain in the mid-single digits, according to ratings agency S&P.

The company said, barring any sharp fall in oil prices, 2019 should mark the easing of three years of significant pressure on regional lenders with stronger economic growth anticipated across most regional economies.

Return on assets is expected to average 1.5 to 1.7 percent this year and net interest margins 3 per cent, while lending growth is projected to stabilise at around 5 per cent over the next 12 months from 4.7 per cent in the middle of 2018.

Problematic assets, defined as IFRS 9 stage two and three loans, are expected to remain stable while the cost of risk is also forecast to stabilise at 1 to 1.5 per cent of total loans.

“We expect GCC economies to show stronger economic growth in 2019 of about 2.8 per cent (unweighted average of Saudi Arabia, Kuwait, the United Arab Emirates, Qatar, Bahrain, and Oman),” S&P said.

“However, this growth will still be below the triple-digit oil-price era growth of 2011-2013.”

The ratings agency has affirmed the ratings of most of the 24 banks it monitors over the last year and taken few negative actions.

A quarter of its rated banks have a negative outlook, of which two thirds are in Qatar due to the potential risk of the regional boycott on funding profiles, asset quality and profitability.

The outlook is based on expected oil prices of $65 in 2019 and $60 in 2020.

The UAE Banks Federation said in its annual report released at the end of August that lenders in the country cut 600 workers and closed 75 branches last year.

Read: UAE banks cut more than 600 workers, 75 branches in 2017

The sector saw a 4.1 per cent increase in deposits in 2017 to Dhs1,627.7bn ($430bn) and assets grew 4 per cent to Dhs2,695bn ($733.7bn).