Dubai: Banks and financial institutions across the Gulf Cooperation Council (GCC) are expected to experience relatively muted direct impact of the coronavirus in China, according to rating agency Standard & Poor’s (S&P).

“We expect the impact of the new coronavirus on banks to be low, and come indirectly through the overall impact on GCC economies, which we expect to be minimal,” said Mohammad Damak, Director of Research at S&P.

Most banks in the GCC have little direct exposure to Chinese companies.

Pressure on key sectors

However, should the outbreak put pressure on important sectors, such as real estate, the effects could surface in the next few months.

This is particularly relevant for banks in the UAE and Dubai.

A slowdown in economic growth due to primary and secondary impact to virus outbreak could mean decline in profitability and asset quality.

The Central Bank of UAE (CBUAE) on Saturday asked banks to reschedule loans and reduce fees and commissions as part of measures to mitigate the economic effects of the coronavirus outbreak.

The UAE is a regional business hub and major transit point for passengers travelling to China and other destinations in Asia.

Rescheduling of loans contracts, temporary deferrals

“Financial institutions are expected to implement measures such as re-scheduling of loans contracts, granting temporary deferrals on monthly loan payments, and reducing fees and commissions for affected customers,” the central bank said in a statement.

Economies of the UAE and other GCC countries are adversely impacted by the recent outbreak coronavirus in China, according to rating agency Standard & Poor’s.

For the insurance sector, S&P analysts do not see any immediate impact on insurers’ underwriting results in the region. However, stronger-than-expected hits to GCC economies or extreme asset price volatility could hurt insurers’ balance sheets.