Outlook broadly stable for GCC banks

Updated 19 December 2013

Outlook broadly stable for GCC banks

Fitch Ratings says 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.


Saudi Arabia looks to cut spending in bid to shrink deficit

Updated 01 October 2020

Saudi Arabia looks to cut spending in bid to shrink deficit

  • Saudi Arabia has issued about SR84 billion in sukuk in the year to date

LONDON: Saudi Arabia plans to reduce spending next year by about 7.5 percent to SR990 billion ($263.9 billion) as it seeks to reduce its deficit. This compares to spending of SR1.07 trillion this year, it said in a preliminary budget statement.

The Kingdom anticipates a budget deficit of about 12 percent this year falling to 5.1 percent next year.

Saudi Arabia released data on Wednesday showing that the economy contracted by about 7 percent in the second quarter as regional economies faced the twin blow of the coronavirus pandemic and continued oil price weakness.

The unemployment rate among Saudis increased to 15.4 percent in the second quarter compared with 11.8 percent in the first quarter of the year.

The challenging headwinds facing regional economies is expected to spur activity across debt markets as countries sell bonds to help fund spending.

Saudi Arabia has already issued about SR84 billion in sukuk in the year to date.

“Over the past three years, the government has developed (from scratch) a well-functioning and increasingly deeper domestic sukuk market that has allowed it to tap into growing domestic and international demand for Shariah-compliant fixed income assets,” Moody’s said in a statement on Wednesday. 

“This, in turn, has helped diversify its funding sources compared with what was available during the oil price shock of 2015-16 and ease liquidity pressures amid a more than doubling of government financing needs this year,” the ratings agency added.