Gulf Banks' Earnings Growth to Slow After Slide in Oil, S&P Says

  • Banks becoming more conservative in lending as oil price drops
  • Credit losses seen increasing after declining for five years

Banks’ earnings in the six-nation Gulf Cooperation Council could slow during the next several quarters as lower oil prices hurt growth and push up loan defaults, according to Standard & Poor’s Ratings Services.

GCC banks, including those in the two biggest Arab economies of Saudi Arabia and the United Arab Emirates, are becoming "more conservative" in disbursing loans because of the slump in crude and its effects on the region’s economic outlook, Suha Urgan, an S&P credit analyst, said in a statement on Thursday. Lower debt at government-related entities in Qatar, tighter mortgage regulation in Saudi Arabia and a drop in real estate deals in the U.A.E. is also contributing to a slowdown in asset growth, he said.

Net income growth at the 26 banks it rates in the region will decline below 10 percent in 2015 and potentially slow further in 2016, the ratings firm said. Credit losses are set to rise for Gulf banks after five years of declines because of slowing growth and volatility in capital markets, according to Urgan.

The Gulf countries, which also include Kuwait, Qatar, Bahrain and Oman, rely on income from oil to fund investment in infrastructure projects, with the halving of oil prices over the past year expected to hit spending. The growth in customer deposits at the 26 GCC banks slowed to 6 percent in the first and second quarters, compared with more than 10 percent year on year in all the previous eight quarters, according to the report.

“Signs of weakness are evident in both interest income and non-interest income,” analyst Timucin Engin said. “The squeeze on interest margins has not yet eased. Low interest rates are returning less on bank assets, but funding costs are gradually increasing.”

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