February 28, 2024

The Powerful Earning Capacity of GCC Banking Arena supports navigating latest downturn


Banks may absorb successful profit margin of up to $36bn before setting out to eat up their capital base, S&P international Ratings stated. The sturdy earning capability of banks within the Gulf can facilitate them navigate this worsening; S&P international Ratings stated it on Wednesday.

The buffers developed throughout healthier times by the region’s banks suggests that they may take successful price a combined $36 billion (Dh132bn) from the slump caused by the impending crisis and falling oil costs before entering into the danger zone.

The 23 banks rated by the agency had assets price $1.5 trillion at the tip of 2019 and are among the foremost profitable within the world.

The Ratings Agency further stated that “S&P international Ratings believes that rated banks’ gain and provision cushions engineered over past years can facilitate them navigate these rough waters.” “Most rated GCC banks have comparatively sturdy gain and a conservative approach to hard and setting aside loan-loss provisions.”

Banks’ potency magnitude relations are terribly sturdy with the common value-to-income ratio reaching 37 percent at year-end in 2019 because of the “low cost of labour, the absence of taxes and social contributions (except for nationals of the GCC countries), and demanding approach toward value management through tiny branch networks and investment technology for client service,” it stated.

Mohamed Damak S&P international Ratings analyst stated that  “Overall, we have a tendency to estimate that rated GCC banks may absorb up to a $36bn shock before setting out to eat up their capital base. This corresponds to concerning 3x our calculated normalised losses, which means a considerable level of stress in our research.”

S&P international Ratings will expect gain among Gulf banks to weaken because of the twin shock of crisis and therefore the decline in oil costs. Mr. Damak further stated that “As they have a tendency to witness the impending crisis being at its peak and therefore the drop by oil value as a gain event instead of a capital event, we have a tendency to don’t foresee that banks can consistently skip the payment of coupons on their hybrid instruments or write down the principal quantity.”

“This is as a result of finance growth can stay restricted, with banks focusing additional on protective their plus quality indicators than generating new business,” it stated.

The impending crisis, that has infected quite 2.5 million populations worldwide and killed over 178,000 people, has derailed the world economy and brought trade and therefore the travel trade to a virtual standstill. The global economy is ready to contract three percent this year because it slides into the deepest recession since the nice Depression of 1930’s, in accordance by a statement as issued by the International Monetary Fund.

The most resilient are the Saudi banks and therefore the least resilient are lenders in Bahrain, in step with the report. Kuwaiti banks have a lower resilience than those in Qatar or the UAE as a result of their high exposure to the $64000 estate sector, it stated. It doesn’t expect any problems to arise concerning the $20bn of Tier one hybrid capital instruments issued by Gulf lenders over the past 5 years, a few of which will fall due for redemption this year.

Oil costs are presently trading lower because of weak demand and oversupply. US crude, West Texas intermediate, slipped into negative territory for the primary time on for contracts due to be delivered in May as storage capability dwindled on the end of weak demand and excess provide. The Brent crude recovered to $21.21 when falling to a near-21 year low earlier within the day.



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