JEDDAH – Banks in Gulf Cooperation Council (GCC) countries are well-positioned in a scenario where the US moves to gradually normalize its monetary policy, Standard & Poor's Ratings Services said Tuesday. Gulf banks suffered during the 2008 global financial crisis, but have since gradually recovered. They benefit from adequate liquidity based on the highly liquid local deposit markets and improvements to corporate asset quality. “We expect the region's healthy economic growth prospects for 2014, supported by high oil prices, to keep demand for bank credit high and enable local banks to increase their earnings.” “In our view, most banks in the key banking markets in the Gulf region are likely to have healthy funding profiles, with sound, high-quality capital, in 2014. This will enable them to continue to exhibit healthy credit growth funded by liquid local deposit markets. Although low interest rates continue to limit Gulf banks' net interest margins, most banks have seen a gradual decline in loan losses. We expect this to continue to support earnings growth in 2014, but by less than in previous years.” The Gulf region's dependence on the hydrocarbons sector remains a structural risk factor. Volatile commodity prices could have a significant impact on Gulf economies. However, the report said certain restructured exposures in Kuwait and the United Arab Emirates (UAE) could also generate downside risks. However, we consider that the banks' strong capital levels largely mitigate these risks. As a result, “we expect ratings to be broadly stable through 2014; of the 26 banks we rate in this region, 17 have a stable outlook.” The GCC region's healthy economic growth prospects for 2014, supported by high oil prices, are expected to keep demand for bank credit high and enable local banks to increase their earnings, according to leading credit raging agencies such as Standard & Poor's (S&P) and Moody's. Analysts expect a strong rebound in the credit growth, improvement in asset quality and profitability in the year ahead. “GCC banks benefit from adequate liquidity based on the highly liquid local deposit markets and improvements to corporate asset quality. In our view, most banks in the key banking markets in the Gulf region are likely to have healthy funding profiles, with sound, high-quality capital, in 2014,” said Timucin Engin, associate director, Financial Services Ratings, Standard & Poor's (S&P). S&P considers banks in GCC countries well-positioned in a scenario where the US moves to gradually normalize its monetary policy. Moody's expects strong economic growth in the region to generate healthy surpluses for the region's governments, which will be channeled into the economy through widespread infrastructure spending, boosting corporate borrowing. “We expect robust average credit growth of more than 10 per cent for the GCC region, reflecting high growth rates in non-oil sectors,” said Khalid F. Howladar, vice-president-senior credit officer at Moody's, said in note. S&P projects credit growth in Saudi Arabia and the UAE to be in the range of 10–15 per cent in 2014. Lending in Qatar and Oman slowed during 2013 as demand from Oman's private sector diminished, while certain projects in Qatar suffered administrative delays. As these projects are revived, credit growth is expected to accelerate. – SG
