Supervisor Elham AbolFateh
Editor in Chief Mohamed Wadie

S&P Expects Low Recovery in Gulf Region’s Banking Sector


Mon 15 Mar 2021 | 12:37 AM
Taarek Refaat

Standard & Poor's (S&P) said that the economic recovery from the coronavirus crisis in the oil-rich Gulf region will be slow, affecting the banking sector in the region.

Last year, Gulf states entered a severe recession as the Covid-19 pandemic affected vital non-oil economic sectors such as trade, tourism, and real estate, in addition to lower oil prices that undermined state revenues.

The credit ratings agency added that events such as this year's Dubai Expo and the World Cup in Qatar next year, plus the oil market recovery, will provide some support but growth will remain below pre-pandemic levels.

“Indeed, most countries will not return to 2019 nominal GDP before 2023, with an even longer road for Saudi Arabia,” it said in a report on Sunday.

"In fact, most countries will not return to nominal GDP for 2019 before 2023, with a longer route to Saudi Arabia," she said in a report on Sunday.

Even as vaccination programs advance, there are downside risks due to the mutations in the new coronavirus strain, S&P said, adding that recovery of tourism, aviation, and real estate 'will take time'.

Some banks in the region are expected to suffer losses in 2021, as all these factors affect the bank’s asset quality with an expected increase in non-performing loans, as well as profitability.

"We believe that the measures implemented by most central banks in the region support liquidity, yet, do not remove or reduce credit risk from the banks' balance sheets," it pointed out.

"The cost of risk will remain elevated after a 60% jump in 2020 as banks set aside provisions in preparation for more pressure," S&P concluded.