GCC banks are expected to face continued asset quality risks resulting in higher loan impairments and elevated provisions leading to strain on profitability in 2021, according to analysts and raging agencies.
Rating agency Fitch says that asset-quality deterioration is the main risk for GCC banks following the economic shock due to the coronavirus pandemic and low oil prices.
The rating agency believes the prolonged loan deferral schemes have only postponed the asset quality issues.
“The extension of support measures for borrowers will limit short-term pressure on asset quality, delaying the recognition of Stage 3 loans well into 2021. Nevertheless, asset-quality metrics could weaken materially in 2021-2022 once support measures are withdrawn,” said Redmond Ramsdale, Head of Middle East Bank Ratings at Fitch.
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