RIYADH: Banks in the Gulf Cooperation Council are currently reaping the benefits of robust operating conditions, driven by factors such as high oil prices, contained inflation, and rising interest rates, according to Fitch Ratings.
In its latest report, the US-based credit rating agency pointed out variations in bank performance across the GCC markets, with financial institutions in the UAE demonstrating signs of improvement compared to their counterparts.
“We expect this improvement to be overall sustained, which, along with other solid financial metrics being maintained, could lead to positive rating actions on some UAE banks’ Viability Ratings,” said Fitch Ratings.
The report highlights that banks in Saudi Arabia, Qatar, and the UAE are well-positioned to benefit from rising interest rates, primarily due to the swift repricing of loan books and substantial funding from low-cost current and savings accounts.
UAE banks, in particular, have seen significant gains from rising rates, with average net interest margins increasing by 100 base points in the first half of 2023 compared to 2020.
NIMs in the UAE are anticipated to stabilize in the second half of 2023 before experiencing a slight dip in 2024, the report added.
Conversely, Qatari banks have experienced only modest NIM improvements due to weak credit demand and ongoing public sector repayment of overdraft facilities.
Strong operating conditions have contributed to robust asset quality metrics in the UAE and Saudi Arabia during the first half of 2023.
“UAE mortgage portfolios could be pressured given their high proportion of variable-rate loans, but the rise in property prices should keep losses-given-default close to nil,” added Fitch.
Saudi banks are projected to outpace the GCC average in financing growth for both 2023 and 2024, driven by increased corporate credit demand and persistent high interest rates.
With oil prices expected to average $80 per barrel in 2023 and $75 per barrel in 2024, the region’s banks can anticipate continued support for their operating conditions, as per the report.
