(MENAFN- Muscat Daily) Muscat- Moody's Investors Service has a stable outlook on the GCC banking sectors for next year, which reflects the rating agency's expectation of their resilience to persistent economic and funding pressures.
he outlook expresses Moody's expectation of how bank creditworthiness will evolve in the GCC over the next 12-18 months.
The ratings agency last week released its report 'Banks - GCC 2017 Outlook - Stable Outlook Reflects Resilience to Persistent Economic and Funding Pressures'.
"While operating conditions for banks in the GCC will remain challenging, the stabilisation of oil prices - albeit at a low level - and resilient non-oil sectors will moderate pressures on the banking sector from slowing economic growth, fiscal reforms and spending cuts," says Olivier Panis, a vice president at Moody's.
Moody's said that the asset quality is likely to remain solid across the GCC, with the rating agency forecasting non-performing loan ratios to remain at between three to four per cent in 2017.
Moody's noted that banks in the GCC still have high single borrower and sector concentrations. Despite the formation of new problem loans as a result of slowing economic activity and tightening liquidity in the region - particularly in the construction, real estate and small and mid-sized enterprise (SME) segment - the ongoing resolution of significant legacy exposures in some systems and better collateral will moderate the impact, it said.
Loss-absorption buffers are also likely to remain robust with tangible common equity (TCE) ratios remaining broadly in the 12-16 per cent range and problem loan coverage high at around 95 per cent plus across the region.
In Moody's view, profitability will remain sound, although it is likely to decline slightly as a result of slowing credit growth. The ratings agency expects net interest margins to remain at around two to three per cent, with net income/tangible assets at around 1.5-2 per cent.
It said the bank funding profiles are also likely to remain robust, anchored by stable deposits representing 75-90 per cent of non-equity funding, but it will remain pressured by decelerating deposit growth, which has slowed to 1.2 per cent on average across the GCC systems as of June 2016 (versus 3.6 per cent in 2015 and 9.8 per cent in 2014) below the level of credit growth (nine per cent year-on-year as of June 2016).
Lower oil revenues, Moody's said, are leading to a decline or slowdown in government and related entity deposits and lower economic growth also means broad reductions in corporate and retail deposit inflows.
However, it said, the recent international bond and sukuk issuances from Abu Dhabi, Oman, Qatar and Saudi Arabia have helped to moderate funding pressures, and most regional banks maintain material levels of liquid assets, eligible as collateral at central banks in case of need.
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