After two years of significant pressure, banks in the Gulf Cooperation Council (GCC) except Qatar, can look forward to a period of stabilization of their finances in 2018, according to a study by Standard and Poor's (S&P) ratings agency.
The study said that the general assessment does not apply to Qatar “where trends in asset quality will depend on how the boycott of the country evolves.”
The ratings agency said the banks in the region will have recognized most of the impact of the softer economic cycle on their asset quality by mid-2018.
Mohamed Damak, credit analyst at S&P Global Ratings in Dubai noted that banks’ “liquidity improved in 2017, and we do not foresee a major change in 2018.”
Adoption of IFRS 9
The analyst added that the adoption of the latest financial reporting standards, IFRS 9, will increase the GCC banks' cost of risk in 2018, along with “the higher amount of restructured and past due but not impaired loans sitting on their balance sheets."
“But we also think the general provisions that GCC banks have accumulated over the years will help a smooth transition to the new accounting standard.”
Profitability at Gulf banks will stabilize at a lower level than before due to “increased cost of risk and the introduction of value added tax (VAT), some of which banks will pass on to their clients,” the nalyst noted.
These assessments do not include the GCC member state Qatar "where trends in asset quality will depend on how the boycott of the country evolves," said the study.
Lending growth will also be muted due to sluggish fiscal conditions in Qatar and the GCC as the S&P study does not foresee rebound in oil prices.
The price of oil hit a high in late Tuesday trading with the Brent crude futures touching $69.29, the most since May 2015.