GCC (Gulf Cooperation Council) banks’ financial profiles should remain stable in 2019, absent any unexpected geopolitical shock. However, the recent drop in oil prices does not bode well for these banking sectors, S&P Global said in its “Global Banks 2019 Outlook”, yesterday.
The Bank lending growth should stabilise at around 5 percent in 2019, as stronger public investments raise economic growth in the region overall.
“We expect profitability to stabilise--with a return on assets at about 1.6 percent and a net interest margin at 3 percent in 2018-- benefitting from the higher interest rates and significant non-interest-bearing deposits,” the global ratings agency said.
International operations could create risks for some GCC banks. A few banks with exposure to Turkey will see some impact on their asset quality. Three-quarters of the 24 GCC rated banks carry a stable outlook. Negative outlooks are concentrated on a few banks in other GCC countries due to higher risk in their international operations. The average GCC bank rating is ‘BBB+’.
The global ratings agency which noted that global banks are bracing for volatility, said it expects banks to face more market volatility in 2019 from policy uncertainty and the rollback of monetary easing.
The credit cycle will turn sooner or later, putting the spotlight on the imbalances that have built up in some developed and emerging markets, even if improved balance sheet soundness in many banking systems should moderate the impact. The monetary policy shift could lead to an abrupt repricing of risks in financial markets and a correction in some housing markets.
Credit conditions remain broadly supportive for banks, but the threats posed by monetary policy normalization, trade tensions, and ongoing political risk are dragging down investor confidence and weakening economic momentum. “Our assessment of recession risk in 2019 for the US stands at 15 percent to 20 percent. While credit conditions are generally satisfactory, we are watchful for any sign of rising problems in some segments like auto, credit card, commercial real estate, and leveraged loans,” the ratings agency analysts said.
