Economic Recovery Spurring Solid Growth For Gulf Banks
Gulf banks have shown healthy earnings growth over the last year and a half despite historically low interest rates, said Standard & Poor's Ratings Services in a new report published today, titled "Economic Recovery Spurs Solid Growth For Gulf Banks." Banks in Gulf Cooperation Council (GCC) countries have experienced lower net interest margins, but improving asset quality and falling credit losses have generally offset this. We believe declining credit losses will continue to support GCC banks' earnings throughout 2014, although we expect this effect to be less visible in 2015.
"Prospects for economic growth in the Gulf region remain healthy for the next few years," said Standard & Poor's analyst Timucin Engin. "We expect most Gulf banks to continue to benefit from robust corporate activity and consumer consumption over the next 18-24 months. The many infrastructure projects planned in the Gulf should translate into sustained streams of corporate lending."
Over the past three years, strong liquidity flows into the Gulf's deposit markets have supported the region's banks--which traditionally rely on local deposits for the bulk of their funding--and we expect this to continue. Regional sovereigns and their affiliated entities are key depositors in the local markets, and their fiscal positions should continue to be bolstered by strong oil prices.
We believe the banks in the region are well-positioned to comply with the incoming Basel III rules. Most banks already have significant levels of high-quality capital, as their reported Tier I ratios indicate. In addition, given their strong earnings generation, Gulf banks can boost their capital if needed by minimizing dividend payouts.
Our rating actions in 2014 have largely reflected the generally positive backdrop in the Gulf region, and our rating outlooks largely reflect the ongoing recovery in the GCC banking system. Of our 27 public ratings, seven have positive outlooks, and only three have negative outlooks.
Under Standard & Poor's policies, only a Rating Committee can determine a Credit Rating Action (including a Credit Rating change, affirmation or withdrawal, Rating Outlook change, or CreditWatch action). This commentary and its subject matter have not been the subject of Rating Committee action and should not be interpreted as a change to, or affirmation of, a Credit Rating or Rating Outlook.
