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October 20, 2016 | 10:25 | Dubai
Banks in Saudi Arabia and Qatar are better placed than Gulf Cooperation Council (GCC) peers to cope with an eventual deterioration in asset quality brought about by a prolonged period of weak oil prices, says Fitch Ratings.
In their base case, GDP will continue to grow in 2017 and 2018 across all GCC countries and they forecast a gradual rise in oil prices to USD 55 a barrel by 2018. Loss-absorption capacity in the Saudi banking sector ranks highest among GCC countries and both Saudi Arabia and Qatar would continue to offer the soundest lending opportunities under that scenario, suggesting impaired loan ratios should increase more slowly in these countries than their peers.
The operating environment is a positive ratings factor for banks in Saudi Arabia, Qatar and the UAE. Business opportunities are strongest in Saudi Arabia and the UAE, reflecting the countries’ larger and more diversified economies. In Qatar, they do not expect any significant cuts to government spending and numerous government-sponsored projects continue to provide profitable, low-risk, lending opportunities for banks.
Relative to GCC peers, the operating environment has a neutral impact on bank asset quality in Kuwait, while in Oman and Bahrain, it weighs negatively on asset quality reflecting the smaller scale of public-sector spending and indirectly fewer lending opportunities in those countries.
The loss-absorption capacity assessments hinge on three components.