GCC banks given thumbs-up by Moody’s ratings agency – not so those in wider Mena

Ratings agency expects credit ratings of banks in the Arabian Gulf to remain stable next year as oil revenue propels public spending while outlook for lenders in deteriorating economies of Egypt and Tunisia is negative.

The ratings agency Moody’s Investors Service is upbeat on GCC banks in 2014 amid cash surpluses, but negative on lenders in the rest of Mena which is still reeling from the economic fallout of the Arab Spring.

Moody’s said it expects the credit ratings of banks in the Arabian Gulf to remain stable next year as oil revenue propels public spending while its outlook for lenders in the deteriorating economies of Egypt and Tunisia is negative amid rising delinquencies.

GDP is forecast to grow between 3 and 5 per cent in the GCC as cash-rich governments spend on infrastructure, Moody’s said. As a result, more companies will borrow money from banks and the GCC will probably have an average credit growth of 10 per cent next year, the agency said in its report on regional banks yesterday.

And strong economic growth in Kuwait, Oman, Qatar, Saudi Arabia and the UAE will ensure that banks have a high capacity to absorb any losses because of a steady flow of cash from governments and individuals, Moody’s said.

Elsewhere in the Middle East, chiefly in Egypt, Morocco, Tunisia, Lebanon, Jordan and Bahrain, the economy is expected to grow between 2 and 4 per cent, Moody’s said. That is far below the levels needed to address chronic unemployment in those countries that was made worse by the political upheavals of 2011.

“High unemployment rates and the risk of further political and social unrest in the region will constrain domestic and business confidence,” analysts at Moody’s including Khalid Howladar in Dubai wrote in the report.

“Accordingly, we expect banks’ profitability to decline as a result of higher loan-loss provisions as asset quality deteriorates.”

Weakness in the economies of Europe will add a further constraint to credit growth in the economies of Egypt, Tunisia and Morocco because they rely on the European Union as its main trading partner, Moody’s said.