Reuters – Fitch Ratings has said the rating outlook for almost all banks in the Gulf Cooperation Council (GCC) region is stable, largely driven by the probability of sovereign support. Regional unrest has a negative impact on banks’ rating outlooks elsewhere in the Middle East.
The sector outlook is also stable overall, although differences between countries are more pronounced, including within the GCC. For instance, Fitch believes that there is a more positive trend in the UAE, Saudi Arabia and Kuwait. Qatari banks also benefit from a supportive environment, although rapid growth may result in capacity limitations and asset quality problems. On the other hand, the environment remains challenging in Egypt, Lebanon and Jordan.
Fitch believes that impairment charges should fall, leading to a gradual improvement in profitability, although further recovery in asset quality will depend on continued economic growth. Banks in non-GCC countries may suffer further problems due to continued political uncertainty and economic difficulties.
Capital levels are generally sound and should be ample in 2014, unless there is significant loan growth. Within the GCC, the banks also enjoy ample liquidity, supported by substantial deposits placed by the governments and related entities.
Any negative impact on the majority of rating outlooks would result from changes in the sovereign ratings in the region or a change in Fitch’s opinion of the sovereigns’ propensity to provide support. However, considering the very strong culture and track record of sovereign support for banks, and the extent to which the sovereigns and banks are interconnected via government stakes and deposits, it is unlikely that Fitch’s opinion on sovereign support in the region will change in the foreseeable future
Some viability ratings could be upgraded in the medium term, reflecting the banks’ recovery from asset quality problems, as the operating environment improves, in particular in the UAE and Kuwait. Any recovery outside the GCC will primarily depend on political solutions to the current unrest.