What Are The Prospects For GCC Banks In 2020?

The outlook for GCC banks remains stable, underpinned by solid economic growth, and by the banks' strong capital buffers and substantial liquidity, according to Moody's Investors Service.

The ratings agency said Gulf government spending programs will push average non-hydrocarbon GDP growth to 2.6 percent in 2020, providing favourable operating conditions for the region's banks.

Moody's said its outlook is stable for all GCC banking systems except Oman where it sees asset quality weakening as lower oil prices have dented government spending, while constrained government finances is expected to limit banks' access to funding and liquidity.

Nitish Bhojnagarwala, senior credit officer at Moody's, said: "Declining interest rates will start to pressure banks' net interest margins but margins will remain strong compared with global peers."

He added that loan performance will weaken modestly but will remain solid. New problem loans will form primarily in the slowing construction and real-estate sector.

Moody's said it expects non-performing loans to stand at a moderate 3.5 percent of total loans by the end of 2020, from an estimated 3.3 percent in 2019.

Capital is a considerable source of strength for GCC banks and it will remain stable at a high level, noted Bhojnagarwala.