We believe that GCC banks' financial profiles will continue to weaken in 2017-2018, but we have already incorporated this in our ratings following our negative rating actions in 2016. The three key risks that we foresee for GCC banks are a difficult operating environment, a higher cost of risk, and lower liquidity. However, most GCC banks have built sufficient capital buffers to remain resilient to their weakened operating environment.
DUBAI (S&P Global Ratings) Jan. 23, 2017--The weak economic environment will continue weighing on the financial profiles of banks in the Gulf Cooperation Council (GCC) countries in 2017 and 2018, said S&P Global Ratings in a report published today "GCC Banks Will Show Resilience In The Face Of A Weaker Operating Environment In 2017-2018."
"The end of the commodities super-cycle has resulted in a significant decline in the economic prospects of the GCC region, implying lower growth opportunities for its banking systems and deteriorating liquidity," said S&P global Ratings credit analyst Mohamed Damak, "and the end of the commodities boom has also increased the pressure on GCC banks' asset quality and profitability indicators.
Although we expect to see further weakening in some of these indicators in 2017-2018, we think that GCC banks have built sufficient buffers to make the overall impact on their financial profiles manageable.
Rated banks in the GCC continued to display good asset quality indicators, profitability, and capitalization in 2016 by global standards, albeit with signs of deterioration from 2015. Over the past year, we have taken several negative rating actions on banks in the GCC. Most of these were concentrated in Bahrain, Oman, and Saudi Arabia. While we have taken a few negative rating actions in other GCC countries, these were primarily for idiosyncratic reasons. Overall, 31% of our rated banks in the GCC have negative outlooks or are on CreditWatch with negative implications.
