GCC economies ‘could expand 4pc next year’

MANAMA: GCC economies are likely to expand at an average of 1.8 per cent in 2021 and 4pc in 2022, in part facilitated by increased credit growth, according to S&P Global Ratings.

In a report titled GCC Banks Hope The Worst Is Over As The Recovery Begins, the ratings agency said banks in the GCC have demonstrated resilience to the Covid-19-related economic shock and last year’s sharp decline in oil prices.

Regional central banks’ unprecedented interventions, in the form of liquidity injections and regulatory forbearance measures, helped cushion banks from wider uncertainty and masked the true hit to their asset quality indicators. However, a gradual recovery in private sector economic activity, supportive public sector demand for credit, and higher oil prices, which S&P assumes an average of $75 per barrel in 2021 and $65 per barrel in 2022, helped amortise the impact on banks.

These factors underpin S&P’s expectations for average regional cost of risk to decline in 2021 and start to normalise from 2022.

The agency expects the GCC banks’ non-performing loans (NPL) ratio to rise in the next 12-24 months without exceeding 5 to 6 per cent, compared with 3.8pc at June 30, 2021, as forbearance measures are gradually withdrawn and the pandemic’s impacts on weaker businesses are laid bare.

S&P also said private sector lending is likely to remain muted for one to two years in GCC countries, except for Saudi Arabia.

However, according to the ratings agency, Saudi Arabia would see stronger growth in contrast to other GCC countries.

“Saudi Arabia will be an exception, with continuing strong lending growth, driven primarily by mortgages and to some extent the implementation of Vision 2030 investments,” it said.

Overall, there had been only marginal improvement across GCC banks, S&P said.

“In turn, nonperforming loan (NPL) ratios increased only 20 basis points (bps) for the top GCC 45 banks between year-end 2020 and June 30, 2021,” S&P noted.


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