Despite the fact that the COVID-19 pandemic has diminished in most countries, pressure on economic growth still exists in few countries. The broader Gulf Cooperation Council (GCC) banking sector had seen a limited impact from the ongoing banking sector crisis in the US and Europe in the years 2022 to 2023. The GCC banking sector had gone through a fundamental transformation and has been on a growth trajectory. This development played an increasingly important role in the region’s overall economic global growth.
Growth in Credit Market Performance
The outlook for the GCC region has been strengthened by strong oil prices and the related improvement in non-oil activity, which has also supported the credit demand in the region. A look back into 2022 for GCC-listed banks shows an upward trend of 9.9% growth in total assets and 25.3% growth in net profit. Economic growth, interest rates, and inflation, along with a change in government policies, can affect the level of the credit market in any country. It is well known that when there is an upsurge in economic growth, banks usually opt to offer more lending options but will charge higher rates of interest. However, this also throws light on the non-performing bonds, mortgages, house/car loans, & credit cards that the banks would have to close if they did not perform well.
The growth percentage will vary as per the lending guidelines practiced by the banks in a country. Higher interest rates did reduce some of the countries’ credit market performance in the UAE to 3% in 2023 from 8% in 2022. However, when it came to some countries in the UAE, which had performing non-oil sectors, credit market growth grew to 7% in 2023 when compared to 5% in 2022. The FIFA Cup in 2022 did make a significant impact in terms of growth revenue, as many infrastructure projects were designed and completed to make the mega event a grand success.
However, one factor was forgotten to be taken into prominence. With millennials making their entry as a prominent part of the workforce, credit markets have changed for the better. This population is ready to take risks, even if it means letting go of their cushy jobs to follow their passion or taking credit from investors to become a first-time entrepreneur. So, banks, investors, and other financial institutions started investing heavily in credit programs (the issuing of new bonds) to make a mark and attract more first-time entrepreneurs since 2021.
Factors Influencing Credit Market Performance
The performance of the credit market will also change as per the government policies in the GCC, the Middle East, and African countries. In countries where commercial banks are subjected to less government intervention and foreign banks are allowed entry, the credit market has seen a steep hike. On the other hand, in countries with more public sector banks where government intervention is needed in releasing funds and the number of private or foreign banks is restricted, the credit market took a hit.
When it comes to credit market performance, small to medium businesses (SMB) are one of the main contributing factors in the economies of third-world countries. They contribute to nearly 30 percent of businesses globally and play a major part in the creation of skilled jobs and economic development. As per a survey, these SMBs play a major role in credit market performance. However, as already explained, finance is one of the main obstacles to business growth in developing countries where the release of funds is done as per government guidelines.
The role of the World Bank in credit market performance
The World Bank has taken a genuine interest in promoting the welfare of small to medium businesses and unlocking sources of revenue for needy companies. Based on their guidelines, many government banks around the globe have designed loans that can be paid in long-term installments for small to medium businesses. This factor had immensely helped the credit market performance to improve to a higher level in the developing countries of the third world. In Ethiopia, nearly 14,000 entrepreneurs were encouraged to take loans as part of the Women Entrepreneurship Development Project. Similarly, in Bangladesh, the introduction of the credit guarantee scheme for small to medium businesses run by women has helped only a portion of the entrepreneurs. Lack of proper training and access to resources are two factors that prevent first-time entrepreneurs from taking credit from public and private banks in many countries.
Conclusion
The entire banking sector has seen rapid change in recent years. After COVID-19, many banks had to reinvent themselves with new technologies while fighting for survival against many odds, such as low interest rates and the introduction of new banks. Also, it is well known that there are two types of credit markets (the first belongs to the government and is run as per its guidelines, whereas the other is run by private financial institutions). Private institutions are seldom regulated by government policies and programs.
The credit market industry has also changed. Gone are the days when businessmen had to run around to get loans from banks. With private banking firms entering the fray in many countries, the focus is more on asset management firms. But on a global scale, the credit market was definitely in one of its best stages in the period from 2022 to 2023.
Article by B Sathya Narayana
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