GCC banks to see long-term adverse effects from 2020 shocks | ZAWYA MENA Edition

GCC banks to see long-term adverse effects from 2020 shocks | ZAWYA MENA Edition

The Gulf Cooperation Council (GCC) states will be slow to recover from last year’s sharp recession triggered by the COVID-19 pandemic and low oil prices, according to a global ratings agency.

“We see long-lasting adverse effects from the 2020 shock on GCC economies and banking sectors. Saudi and Qatar's banking sectors will be less impacted than those in the United Arab Emirates (UAE), Oman, and Bahrain, while in Kuwait the story will depend on the evolution of the fiscal impasse,” the S&P Global Ratings said in a new report.

Some banks will post losses in 2021, the report said. Banks suffered a triple shock to profitability in 2020 from lower lending growth, lower-for-longer interest rates, and higher cost of risk. Cost of risk will remain elevated following a jump of 60 percent in 2020 as banks set aside provisions in preparation for more stress.

On the economy front, real GDP contracted sharply in 2020 because of low oil prices and a significant COVID-19-related slump in the hospitality, commerce, and real estate sectors. “We expect oil prices will average $60 for 2021 and 2022 and continued progress on vaccine rollouts but see downside risks from further virus waves.”

Dubai Expo 2020 and the football World Cup in Doha in 2022, as well as hydrocarbon sector recovery, will boost economic growth but it will remain below historical levels. Indeed, most countries will not return to 2019 nominal GDP before 2023, with an even longer road for Saudi Arabia, it said.