Outlook stable for GCC banks despite fall in oil price, says Moody’s

Ratings agency said it was still upbeat about the prospects of UAE banks because bad loans are declining as the country’s economy booms.

Outlook for banks in the GCC will remain stable through to 2015 despite falling oil prices, Moody’s Investors Service said yesterday.

The ratings agency is expecting 10 per cent credit growth for the GCC banking sector for 2014-15, but growth will be more subdued compared to the boom of the past couple of years.

“More moderate credit growth isn’t a bad thing for the Gulf,” said Khalid Howladar, the vice president and senior credit officer at Moody’s.

“But if the government spends less, the non-oil economic growth will also reduce, which will subdue credit growth.”

Late last month, Moody’s kept its ratings outlook for UAE banks at stable.

It said it was still upbeat about the prospects of UAE banks because bad loans are declining as the country’s economy booms.

However, the psychological effect of falling oil prices will also have an impact on the economy, said Mr Howladar.

Brent crude dropped by $2 yesterday to $67.54 per barrel.

“Overall it is not necessarily a bad thing. There are no real problems as such compared to the last time when oil prices fell, which was much more dramatic,” said Mr Howladar.

“The banks are better capitalised and more liquid and in a more fundamentally sound position than they were in last time.”

The IMF is predicting oil prices per barrel will range from $50 to $80 over the next 10 years.

But Standard Chartered has taken a more cautious approach and is expecting credit growth to be flat for the next year.

“Our view is that credit growth will be flat in the next 12 months driven on the back of two things,” said Syed Khizer Pasha, a senior credit manager at Standard Chartered.

“Falling oil prices means shrinkage in the corporate sector and the other reason is the quantitative easing which will start very soon. Interest will rise a little bit and that will put downward pressure on credit growth.”

Mr Khizer Pasha said he has not seen any uptick in borrowing in the UAE. “There are a lot of deals out there, but a lot of it is refinancing,” he said.

Overall, however, the GCC is expected to fair reasonably well.

“In very basic aggregate terms, oil prices will affect both the fiscal position of the GCC and also the external,” said Lucio Vinhas de Souza, managing director and sovereign chief economist at Moody’s.

“The implication is a natural one, the lower the oil price goes, the greater the fiscal deficit the countries will face, but even if oil prices falls to $60 the GCC countries will still have current account surplus.”

The UAE has enough external sovereign wealth assets in terms of expenditures to keep it going for more than five years, according to Moody’s.thamid@thenational.ae

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Published: December 8, 2014 04:00 AM

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