Moody's Investors Service said that the profits of banks operating in the Gulf Cooperation Council countries will be affected by the double strike of low oil prices and the Corona pandemic, as well as the economic downturn during 2020.
The agency added - in a research note, Monday - that the decrease in bank profits is mainly due to the increase in provisions for loan losses, and the decrease in interest income.
According to the memorandum, Gulf banks, rated by Moody's, achieved net revenues of $ 34.5 billion in 2019, giving them the ability to absorb losses. Moody's continued, "The region's banks have sufficient capital to enhance their solvency to cope with the consequences of the pandemic."
The memo pointed out that the economies of the Gulf countries will shrink, which weakens the main sources of income for banks: interest on loans, fees and commissions, while the fees for provisions for loan losses will rise sharply.
Poor growth
The agency expected real non-oil GDP to shrink in the Gulf Cooperation Council countries by between 3.5% and 5% in 2020.
She pointed out that the weak growth will be reflected in the decrease in loan requests and the desire of banks to lend, which leads to achieving an average loan contraction of between 0% and 5%. At the same time, lowering interest rates and increasing customer default will lead to a decrease in bank income from interest, while expenses will increase Financing moderately.
I also expected that the capital will decrease slightly, but it will remain sufficient in light of the low asset base and low dividends.
Gulf economies have been affected by the outbreak of the Corona virus, and the region's governments have monitored massive incentive packages of tens of billions to address the major repercussions of the virus.