Moody's changes outlook on five GCC banking systems to negative

DIFC - Dubai, April 02, 2020 -- Moody’s has changed its outlook to negative from stable for the banking systems of Saudi Arabia, United Arab Emirates, Kuwait, Qatar and Bahrain and maintained its negative outlook on the banking system of Oman because of the oil price collapse and coronavirus outbreak, Moody’s Investors Service said in a report published today.

Oil prices are substantially below those required to balance the budgets of Gulf Cooperation Council (GCC) states. This will weigh on government revenues and lead to spending cutbacks that will rein back growth in the non-oil sectors of the economy where the banks do most of their business. Additionally, banks will face a reduced flow of deposits as falling oil prices squeeze government revenues – the largest depositor in most GCC banking systems.

Furthermore, restrictions on businesses and households’ activities to slow the spread of the coronavirus will place severe pressure on economic activity and put many borrowers under stress. Moody’s expects defaults on bank loans to increase and loan-loss provisioning for doubtful loans to rise. A combination of higher loan loss provisions and slower lending growth will erode the banks’ normally solid profitability.