GCC banks will see substantially decreased sales and credit score growth in 2020 as they face an income shock from the oil fee drop and Covid-19 pandemic, S&P Global Ratings said.
As the area’s creditors attention on keeping asset satisfactory rather than commercial enterprise expansion, the pandemic will halt growth at both Islamic and conventional banks this 12 months as the sharp decline in oil costs, increased actual-property charge corrections in a few markets, and drop in critical nonoil financial sectors will pressure banks’ profits, the scores corporation stated.
“The sharp drop in oil expenses and measures carried out via regional governments to include transmission of the coronavirus will take a toll on crucial sectors together with real estate, hospitality, and customer-related. Under our base-case state of affairs, we assume that these measures may be noticeably short lived and forecast a gradual restoration in nonoil pastime from 0.33-area 2020,” stated S&P Global Ratings credit analyst Mohamed Damak.
“However, the severe surprise ought to cause irreparable harm to some elements of the nonoil economy. Furthermore, if the recuperation takes longer than we anticipate, GCC banks should experience greater stress,” Damak concluded.
Most primary banks inside the GCC have already provide you with stimulus packages to assist the banking device resist the financial fallout of the pandemic. The Central Bank of the UAE on Sunday doubled the dimensions of its stimulus package deal to Dh256 billion and allowed banks and finance agencies within the country to increase deferrals of foremost and interest payments to their clients till December 31, 2020. The regulator additionally took any other fundamental step, halving the reserve requirement for demand deposit of all banks from 14 per cent to seven in keeping with cent with a view to boom liquidity in banking zone.
In its record, S&P said Islamic banks are probably to look a more effect on asset-best indicators “because they typically have a better percentage of publicity to real estate and can’t fee past due payment fees. Stimulus and help measures from GCC governments will help banks navigate the difficult environment but probable now not solve structural problems except we see more potent intervention.”
According to Moody’s, the on the spot impact of a sustained period of lower oil expenses could be at the legal responsibility aspect of the balance sheets due to decreased deposit inflows from authorities and government-related entities. “A prolonged duration of low oil fees dangers constraining present public spending plans for you to undermine self belief and pressure financial boom. Economic boom and consequently credit score increase within the GCC has already slowed on account that oil fees commenced to mild in 2014. A extra protracted duration of decrease fees will strain asset quality,” stated Ashraf Madani, senior vice chairman and analyst at Moody’s.
Moody’s has stated a tremendous cut in hobby charge could lessen UAE banks’ internet interest margins) because gross yields earned on loans will decline extra than the investment fee paid on deposits, and due to the fact the fee reduce is unlikely to materially boom credit volumes inside the cutting-edge tough working surroundings.
In March, S&P revised its outlooks of a few UAE banks which include First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreqbank, Sharjah Islamic Bank and National Bank of Fujairah to bad, whilst maintaining lengthy- and short-time period company credit score ratings on these entities.
S&P said it expects a large slowdown in lending boom in 2020. “Although boom prices last yr were almost the same as 2018, GCC conventional banks saw faster will increase than Islamic banks. “In 2020, we assume slower natural and nonorganic growth, with Islamic and conventional banks seeing comparable quotes of 2-3 according to cent.
“We undertaking average real GDP boom for the six GCC nations will slightly boost up in 2020 in comparison with 2019, but this will be frequently spurred through higher oil manufacturing. With the enormous decline in oil fees – our assumption for 2020 is now an average of $30 in step with barrel, down from $60 on the begin of the year – and government measures to incorporate the unfold of Covid-19, we suppose that nonoil increase will decline. This will result in fewer growth opportunities for banks. We also assume banks to recognition more on asset-nice indicator preservation than generating new