#Saudi Banks Seen as Gulf’s Most Vulnerable in Oil-Price War - Bloomberg

Saudi Banks Seen as Gulf’s Most Vulnerable in Oil-Price War - Bloomberg:

Saudi Arabian banks may pay the biggest price among their regional peers as the kingdom enters an oil-price war.

Lenders in the world’s largest oil exporter, already dealing with a fragile economy, now have to contend with plummeting crude prices -- which could lead to more problem loans -- and the fallout of the coronavirus that’s closed the kingdom’s schools and limited cross border movement. A surprise interest rate cut last week also means profit margins are under pressure.

“Sustained lower oil prices would undoubtedly impact the private sector and lead to a pick-up in delinquencies,” said Chiro Ghosh, an analyst at investment bank SICO BSC in Bahrain. Saudi banks with a high share of corporate loans “are at greater risk” so will “focus more on mortgage loans to protect their margin.”

While the full impact of oil’s 43% drop this year are unclear, profits may come under pressure in the longer term if the kingdom reins in spending. Tighter domestic budget conditions could also result in less state deposits being parked with banks, reducing their ability to use that money for lending and increasing their cost of capital.