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Wednesday, 7 December 2016

Fitch: GCC Banks Outlook Stays Negative; Low Oil Raises Pressure | Reuters

Fitch: GCC Banks Outlook Stays Negative; Low Oil Raises Pressure | Reuters:
"Low oil prices continue to pressure bank liquidity and are also taking their toll on asset quality and earnings for banks in Gulf Cooperation Council (GCC) countries, Fitch Ratings says. The 2017 Sector Outlook for GCC banks remains Negative as weaker economic growth will feed through to credit fundamentals. The slow oil price recovery affects banks in all GCC countries, where about 70% of GDP is driven, directly or indirectly, by oil revenue. We forecast oil prices to flatline in 2017 with Brent crude averaging USD45/bbl. Lower oil prices have put significant pressure on the fiscal and external positions of all GCC sovereigns and governments are cutting spending and looking to raise additional revenue in response. Governments will be more selective with new large infrastructure projects, but we expect non-oil growth rates to pick up in 2017 as GCC economies overcome the initial shock of government cutbacks. Nevertheless, the pressure on governments and subdued economic growth negatively affect banks' credit profiles. Government deposits in banks have been shrinking or growing more slowly. Deposit and interbank rates have increased and banks have issued more debt and tapped the international syndicated loan market. Liquidity is still comfortable, but this tightening is likely to put pressure on loan growth, especially in Oman, Qatar and Saudi Arabia. We expect asset-quality metrics to decline slightly in 2017 as lower government spending and GDP growth affects the loan portfolios."

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