Last Updated on Wednesday, 27 Jumada II 1439 H – March 14, 2018
Moody’s, the global credit rating agency, forecast credit growth (loans and financing) in Gulf banks between 4-7% this year. The risk of moderate assets (loans and other sources of bank income) and profit pressure will not affect the capital of Gulf banks, it said on the sidelines of its conference on debt risk in the region. Arab Finance Minister Lynn Shoman said Moody’s said Gulf companies were looking to capital markets for funding in the next five years as governments moved ahead with structural reforms. The rise in geopolitical risks in the Gulf region has complicated the business environment and is likely to have a negative impact on investor sentiment. Local credit will rise 4% in Saudi Arabia, while it is expected to grow by 6-7% in Oman and Kuwait respectively, without explaining detailed credit growth ratios in the UAE, Qatar and Bahrain. Moody’s said that 75% of Gulf banks’ assets are rated with a stable outlook. The number of Gulf banks is about 63 banks with assets close to two trillion dollars, according to statements of the Union of Arab Banks. According to the report, there is still an increasing desire on the part of banks to obtain substantial government support to maintain good liquidity levels. “Lending will remain strong, but non-performing loans will rise slightly between 3 and 4 percent on average as a result of slower economic conditions and rising borrowing costs. Islamic Banking “Islamic finance in the region has achieved strong growth over the last 10 years, and the sector is likely to maintain strong growth levels in the years to come, given its small size and growth,” said Nitich Buchanjrawala, an Islamic finance analyst and vice president at the agency. Strong in demand. He said that the size of Islamic banking in the GCC countries doubled from $ 42 billion in 2008 to $ 100 billion in September last year. He also said that the spread of Islamic banking services in the GCC countries reached 45% in September 2017 compared to 31% in 2008. He predicted that the level of growth in Islamic assets will stabilize this year, outpacing the rate of growth in traditional banking assets. Global sukuk issuances are likely to stabilize little this year after growing by 17% last year, mostly from the GCC, to $ 100 billion. Strong economy of Kuwait Moody’s maintained its stable outlook for the Kuwaiti banking system, explaining that Kuwait’s strong economy supports asset quality and business growth. Moody’s said credit support provided to banks by the state would be supported by somewhat unstable economic growth and strong financial fundamentals over the next 12 to 18 months. “The level of non-performing loans in the sector will stabilize at around 2 percent of total loans amid favorable domestic conditions,” said Alexios Filippides, vice president and analyst at Moody’s. “Banks in Kuwait have cleaned their portfolios before applying IFRS 9 this year by mobilizing a wide range of public provisions accumulated in recent years, helping to reduce future declines.” Moody’s predicted in the report that Kuwait’s non-oil GDP will grow by 3.5% this year and 4% in 2019 amid rising government growth. The report also predicted that the annual growth rate of domestic credit in Kuwait will reach about 6% in 12 to 18 months. The report sees the main risks to banks lie in the political and geopolitical local negative or the renewed weakness in oil prices, factors that can reduce confidence and subject to equity markets and real estate. Kuwaiti banks have maintained their ability to absorb losses. The capital adequacy ratio in accordance with Basel III has reached 15.8% as of December 2017. Moody’s said the significant general provisions would allow Kuwaiti banks to move to IFRS 9 without a negative impact on capital. The report predicted that the profitability of Kuwaiti banks will improve on net interest margins and lower credit costs. Net income to tangible assets is expected to rise to 1.3% from 1.1% in 2017 during the forecast period. Moody’s also predicted that banks ‘deposits in Kuwait, along with current excess liquidity, would increase banks’ ability to grow their loans without increasing their dependence on the sensitive market financing during the 12 to 18 month forecast period.