S&P Global previously projected that GCC banks should maintain stable financial profiles in 2020 without any major increase in geopolitical risk or a sharp fall in oil prices
by Kudakwashe MuzoriwaGCC rated banks face downward pressure on profitability and loan quality due to deteriorating operating conditions resulting from real estate sector, drop in oil prices and the impact of COVID-19 outbreak which is likely to result in revised outlooks and credit rating downgrades.
S&P Global affirmed its credit ratings on First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Mashreq Bank, Sharjah Islamic Bank and National Bank of Fujairah and revised the banks’ outlook to negative due to the worsening operating environment which is expected to result in significant deterioration of the banks’ asset quality indicators and hamper their profitability.
The rating agency expects loan quality to be tested and the cost of risk to increase, weighing on banks’profitability in the next 12 to 24 months.
The average ratio of stage 3 loans to total loans for the top 15 banks was 6.3 per cent in 2019 compared to 5.8 per cent the previous year, said S&P.
According to S&P Global, “The sharp drop in oil prices and reduced activity due to COVID-19 will exert significant pressure on the economy, especially the real estate, trade, retail, transportation, and hospitality sectors.”
The banks’ profitability is also expected to drop following interest rates cuts by the Central Bank of the UAE (CBUAE) after an emergency move by the Fed to slash its benchmark interest rate by a full percentage point to near zero in response to the impact of the coronavirus outbreak.
S&P said that reliance on deposits from government-related entities could also create risks given some of these entities might use these funds over the next 12-24 months. However, the rating agency does not foresee any material impact on the banking system’s funding and liquidity profile.
The recovery of oil prices from $30 in 2020 to $50 in 2021 as well as a slight improvement in the non-oil sector in 2021 is expected to lessen the impact on banks’ asset quality indicators.
Moreover, CBUAE’s recently launched Targeted Economic Support Scheme is also projected to ease commercial enterprises’ financial positions.
S&P Global previously projected that GCC banks should maintain stable financial profiles in 2020 without any major increase in geopolitical risk or a sharp fall in oil prices.
MOST READ
BUSINESS
UAE firms launch Covid-19 economic aid packagesBUSINESS
Saudi Arabia plans to boost oil export to 10...BUSINESS
Aldar to invest AED 2 million in Abu Dhabi...BUSINESS
Saudi Aramco posts a 21 per cent decrease in...BUSINESS
Oil drops 31 per cent as price war erupts...BUSINESS
ING Groep plans to sell its Turkish unitBUSINESS
Bahrain considers stake sell in oil assetsBUSINESS
NMC Health hires Moelis for debt restructuringBUSINESS
Saudi Aramco prepares for international listingBUSINESS
SABB seeks to boost corporate lendingBUSINESS
Egypt plans to resume IPOs of parastatalsBUSINESS
SHUAA Capital reports a net profit of AED 45...BUSINESS
HSBC considering exiting from TurkeyBUSINESS
Dubai's DP World buys 44 per cent stake in...
CPI Financial was established in Dubai in 1999 to meet the needs of an ever-expanding financial community, offering a comprehensive portfolio of market-leading products and services tailor-made for the banking and financial services sectors.
Loading More post
