Stable outlook for GCC banks; but profits under pressure again: Fitch | ZAWYA MENA Edition
Fitch Ratings expects to see positive real GDP growth in most GCC countries which should bring revenue opportunities for the region’s beleaguered banking sector currently reeling from the twin shocks of low oil prices and COVID-19 related economic slowdown.
“Overall, we have a stable outlook on the banking sector despite the challenging environment,” said Raymond Ramsdale, Head of Middle East Banks & Islamic Banking at a Fitch webinar titled “2021 Outlook: ME Islamic & Conventional Banks Wading Through the Coronavirus and Low Oil Prices” on Wednesday.
The ratings agency expects loan growth in the GCC to be soft, averaging between 2 and 3 percent, driven by a mix of government and government-related entities (GRE’s) and non-oil sector. However, for banks in Saudi Arabia, the average loan growth could be about 7 percent, higher than the Middle East average, on the back of growth in retail mortgages.
Banks’ profitability, which last year was impacted by lower interest rates, higher impairment charges and lower business volumes will continue to be under pressure in 2021. “In fact, loan impairment charges may be even higher this year as we expect to see loan impairment charges over gross loans to average between 1-1.5 percent; two or three times what they have historically been,” said Ramsdale.
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