Outlook: Non-performing loans will hinder MENA banks' recovery | ZAWYA MENA Edition

Outlook: Non-performing loans will hinder MENA banks' recovery | ZAWYA MENA Edition:

COVID-19 has hit economies in the Middle East and North Africa (MENA) hard over the past few months, and although lockdowns are being scaled back now, economic recovery is likely to be sluggish. 

The main obstacle to the region’s banks is the rise in non-performing loans (NPLs), according to London-based economic research consultancy Capital Economics.

"Measures to contain the virus have led to large swathes of economies being shut down, leading to job losses, falls in income, and a greater incidence of business failures. Indeed, a recent survey by the Dubai Chamber of Commerce found that a majority of businesses expect to close within the next year, with those in the travel and tourism sector expecting more acute pain in the coming months," Capital Economics' James Swanston wrote in a note.

Authorities across the region have taken steps in recent months to mitigate the risk that the current economic downturn triggers balance sheet strains. Central banks in the Gulf and Jordan have lowered interest rates in line with the Fed, while in Egypt, Morocco, and Tunisia have cut rates too. Most governments have directed local banks to give debt payment holidays to customers.