GCC banks begin post pandemic recovery: S&P

Dubai: GCC banks have begun their recovery from the unprecedented shock from COVID-19 pandemic, according to rating agency Standard & Poor’s.

While the central banks’ unprecedented interventions, which took the form of liquidity injections and regulatory forbearance measures, helped cushion uncertainty during the crisis, the rating agency said improving economic conditions are supportive of banking sector recovery.

Asset quality

A gradual recovery in private sector economic activity, supportive public sector demand for credit, and higher oil prices have also helped amortise the impact on banks. In turn, non performing loan (NPL) ratios increased only 20 basis points (bps) for the top GCC 45 banks between year-end 2020 and June 30, 2021.

The rating agency expects the NPL ratio to rise in the next 12-24 months without exceeding 5 to 6 per cent, compared with 3.8 per cent on June 30.

However, S&P said, as GCC economies recover and expand at a projected average of 1.8 per cent in 2021 and 4 per cent in 2022, the average regional cost of risk is expected to decline in 2021 and start to normalise from 2022.

Saudi Arabia continued to drive loan growth in in GCC with lending up 7.9 per cent in the first-half.

Lending growth

“We expect this to continue since mortgage production remains strong and we see some corporate lending activity. Lending growth in the UAE remained muted at about 0.6 per cent, with some banks’ lending books reducing in the first-half. We expect a slight acceleration in lending in second-half 2021 as UAE economic sentiment continues to improve, especially with the start of Expo 2020,” said Nasreddine.