(MENAFN- The Peninsula) The Peninsula
Doha: Increased geopolitical uncertainty is weighing on the economic prospects of the Middle East, North Africa, and Turkey (MENAT), potentially undermining their banking systems' creditworthiness. Shaky investor confidence and problematic assets are continuing to plague the regional banks, S & P Global Ratings noted yesterday.
As investor confidence remains fragile, some countries' high dependence on foreign funding and nonresident deposits represents a key risk. The capacity to attract foreign funding represents one of the main challenges for MENAT banks, since the need for external financing will remain high due to the weak state of some local economies and the overall slow pace of fiscal consolidation. In Lebanon, Morocco, and Jordan, banks largely rely on nonresident transfers, while Turkey's banking system is more dependent on wholesale funding, which became highly volatile as geopolitical tension increased, the ratings agency said.
'Geopolitical uncertainty and domestic political turbulence in Lebanon and Tunisia are likely to weigh on banking systems' creditworthiness, said S & P Global Ratings credit analyst Stephanie Mery.
Lebanese banks' capacity to retain nonresident deposits is fundamental to guarantee the sustainability of the banking system and the government's finances. However, deposit erosion that started in first-half 2019 intensified in the second half. This was because of domestic political developments, protracted social unrest, prolonged bank shutdowns, and individual banks' restrictions on specific transfers and operations.
From August 2019, declining investor confidence accelerated withdrawals and deposit outflows outside the country, notwithstanding increased interest rates, the imposed longer tenor of those deposits, and restrictions on transfers abroad. This trend raised concerns about the stability of the Lebanese pound peg with the US dollar, thereby putting additional pressure on the Lebanese government to implement decisive reforms, which we think will be difficult in the current environment.
The adoption of International Financial Reporting Standard 9 and sluggish economic environments are increasing problematic assets, particularly in Tunisia and Lebanon. Ratings in low ‘B' territory will remain dominant in 2020, with the exception of Moroccan banks, which we expect will maintain stable asset quality and financial performance indicators.
'Average real GDP growth in MENAT countries was weaker than we expected in 2019 and at its lowest level for 10 years. In 2020, we expect a slight acceleration in average real GDP growth, even if the economic prospects vary widely within the MENAT region due to challenges and factors specific to individual countries, the ratings agency said.
Meanwhile, Moody's yesterday said it expects a further gradual erosion in GCC credit metrics as oil prices remain moderate over the medium-term.
'The pace of fiscal consolidation will remain slow in the GCC in 2020 and fiscal strength will continue to erode in the absence of significant new fiscal measures and reforms, said Alexander Perjessy, a Moody's Vice President - Senior Analyst. 'This will be exacerbated by existing commitments to limit oil production, which will reduce government revenue.
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