Outlook on GCC banks stable but that on other MENA lenders negative – Moody’s

By bne IntelliNews December 9, 2013

The outlook on GCC banks remains stable amid vibrant operating environment, high sovereign fiscal surpluses and increased public spending, Moody’s said in a new report. Such favourable parameters will continue to underpin the GCC banks' “high loss-absorption capacity and sound funding and liquidity,” Moody’s noted. The outlook on banks in the rest of MENA countries, however, is negative due to the unsettled political and social environments that will weigh on banking operations, the agency said.

The GCC banks' ratings will remain broadly stable in 2014. The GCC economies will achieve an aggregate real GDP growth of between 3% and 5% in 2014 and oil prices will also remain above fiscal breakeven levels (with the exception of Bahrain), Moody’s forecasts. The robust GDP growth rates in the GCC countries will generate healthy surpluses for the region's governments. Those surpluses will be channelled into the economy through widespread infrastructure spending, boosting corporate borrowing, Moody’s said. The credit growth in the GCC, thus, will average more than 10%, reflecting high growth rates in non-oil sectors.

The buoyant GCC economies will also lead to improving asset quality for the region's banks, and consequently lower provisions and higher profits, translating into strong capital buffers despite the robust demand for credit. The GCC banks will continue to benefit from stable funding sources from government and retail deposits, boosting their funding and liquidity, Moody’s underscored.

As to the rest of MENA banks (Jordan, Lebanon, Egypt, Morocco, Tunisia), Moody's expects negative rating pressures for 2014. This will be due to “subdued business opportunities for banks caused by the unsettled political climate and rising pressures on asset quality from high unemployment rates and low consumer and business confidence.”

The aggregate real GDP growth in those oil-importing countries will average between 2.0% and 4.0% in 2014, which is well below historical trends and likely below levels necessary to tackle social demands, Moody’s noted. The weakness in European economies, a main trading partner, will also weigh on business activity, constraining credit growth in such countries. The latter will continue to post budget deficits, with banks filling the gap in state funding by increasing their holdings of high-risk sovereign debt, according to Moody’s. The banks' low capital buffers will provide limited capacity to absorb shocks. Moody’s, however, underscored that funding from retail deposits and expatriate remittances will remain a credit strength in most of MENA’s non-oil exporters. 

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