S&P expects Brent to average $55 per barrel
in 2015, $65 in 2016, and around $75 in 2017, accordingly the rating agency has
revised the ratings of regional sovereigns in the first quarter of this year
followed by changes in its opinion about the risk or creditworthiness of their
banking systems.
Although analysts at S&P do not expect a
sharp slowdown in economic growth and credit growth followed by deterioration
in asset quality metrics, they said there will be all-round moderation in the
banking sector.
“We expect less of a pronounced slowdown in
domestic credit growth than in economic growth over the next two years. That’s
because none of the GCC sovereigns has announced any major cutbacks in
infrastructure spending. However, we do expect a modest slowdown in projects
related to the oil sector. And we expect banks to be generally more selective
about loans for longer-term projects, which require longer-term funding,” said
Standard & Poor’s credit analyst Timucin Engin.
S&P has forecast 8.5 per cent to 9 per cent
credit growth in 2015 and 2016 for the GCC banking system, compared with 9.8
per cent in 2014, and 10 per cent growth a year earlier. As a result, domestic
credit in the GCC (excluding credit exposures to non-residents and exposures of
Bahraini wholesale banks) is projected to grow to $1.2 trillion (Dh4.4
trillion) by end-2016, from about $1 trillion at year-end 2014.
If the oil price decline is to persist over a
longer period, the rating agency expects a much stronger impact on domestic
credit growth via reduced government spending. Infrastructure spending by
cash-rich Gulf governments is traditionally an important driver of corporate
activity and domestic credit growth in the region. “Given that the GCC
sovereigns are highly dependent on hydrocarbon revenues, they could arguably
reduce infrastructure spending to contain widening budget deficits, if oil
prices are lower than we assume or for longer,” said Engin.
The rating agency expects slower growth in the
retail banking segment in the UAE this year, and domestic credit growth to come
in at about 8 per cent for 2015 and 2016 compared to about 9.5 per cent in
2014.
In Saudi domestic credit growth to private sector
is expected to be in high single digits for 2015-2016. Government spending is
likely to remain stable. Credit growth in Qatar has been slowing visibly since
2013 in line with a noticeable slowdown in public-sector lending.
“Although we expect the Qatari government to
continue to invest in all key projects, we understand that implementation will
be more gradual and some noncore projects will be cancelled. We expect domestic
credit growth to slow further to about 10 per cent in 2015 and 2016, from 13
per cent in 2014,” he said.
In Kuwait domestic credit growth was 6.2 per cent
in 2014, lower than 8.1 per cent in 2013, largely due to a 12 per cent
contraction in exposure to nonbank financial institutions. Retail growth was
strong at 10.4 per cent last year is expected to remain same this year. While
Oman’s credit growth is expected to be in the range of 7 to 8 per cent
Bahrain’s domestic credit growth is expected to be limited to low single
digits.
Source: zawya