Banks in Saudi Arabia and Qatar are better placed than Gulf Cooperation Council (GCC) peers to cope with a deterioration in asset quality brought about by a prolonged period of weak oil prices, says Fitch Ratings.
After examining the impact of lower for longer oil prices, Fitch analysts reckon loss-absorption capacity in the Saudi banking sector ranks highest among GCC countries and that both Saudi Arabia and Qatar would continue to offer the soundest lending opportunities.
“The operating environment is a positive ratings factor for banks in Saudi Arabia, Qatar and the UAE. In our view, business opportunities are strongest in Saudi Arabia and the UAE, reflecting the countries' larger and more diversified economies.,” said Eric Dupont, senior director, financial institutions at Fitch Ratings.
“In Qatar, we are not expecting any significant cuts to government spending and numerous government-sponsored projects continue to provide profitable, low-risk, lending opportunities for banks," Dupont added.
In Kuwait, Fitch experts forecast little change to government spending patterns, while in Oman and Bahrain, weak oil prices weighs negatively on asset quality reflecting the smaller scale of public-sector spending and indirectly fewer lending opportunities in those countries.
The house view at the ratings agency is that GDP will continue to grow in 2017 and 2018 across all GCC countries and oil prices will climb to $55 a barrel by 2018.
This week the IMF urged policymakers across the GCC to remain vigilant about the financial stability risks, especially tightening liquidity and the risk of deteriorating asset quality.
"Middle East oil exporters continue to face an exceptionally challenging environment as low oil prices and conflicts continue to weigh on economic activity, fiscal and external balances, and the financial sector," IMF experts wrote in a report.
"Many have made progress in fiscal consolidation, yet sustained efforts will be required over the medium term to place public finances on a sound footing.
"Plans to diversify economies away from oil and create jobs for the rapidly growing populations have also been announced. Such economic transformation will take time."