Bright prospects for GCC banks with GDP growth forecasts reaching 5% in 2014 - IFN

Bright prospects for GCC banks with GDP growth forecasts reaching 5% in 2014

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GLOBAL: The outlook for the banking industry across the GCC region is expected to remain broadly stable for 2014. According to a recent report released by Moody’s, the buoyant operating environment existing throughout the GCC will lead to an improvement in asset quality for banks in the region. On the flipside, the rating agency expounded a bleak outlook for banks in the wider MENA region due to political uncertainty and the volatile business environment. With the exception of Bahrain, most countries of the GCC (Kuwait, Oman, Qatar, Saudi Arabia, and the UAE) have been assigned a stable outlook by the ratings company. According to Moody’s, Bahrain remain the only banking system in the region with a negative outlook. The high fiscal surpluses and increased public spending in the other GCC economies are expected to continue to underpin the high loss-absorption capacity and sound funding as well as liquidity for the banks therein. According to the report, real GDP growth of between 3-5% is expected materialize across the GCC next year. This growth will most likely generate healthy surpluses for the region's governments and be channeled into the economy through extensive infrastructure spending which will in turn boost corporate borrowing. Moody’s also expects an average credit growth exceeding 10%, attributed to high growth rates in non-oil sectors. Banks in the region are also believed to continuously benefit from stable sources of funding from respective governments and retail deposits. In contrast, a negative outlook has been projected for the rest of the MENA region (Egypt, Jordan, Lebanon, Morocco and Tunisia). Real GDP is expected to grow between 2-4%, a level which is reportedly below historical trends. The bleak outlook is attributed to the anticipation of subdued business opportunities for banks caused by the unsettled political climate and rising pressures on asset quality from high unemployment rates as well as low consumer and business confidence. Taking into consideration European markets as a main trading partner, their weak position will also take a toll on business activities in the region.