While banks in the Arabian Gulf will be shielded from the weak global economy by stores of oil-generated wealth, these lenders will face mounting pressure on their margins because of low interest rates, Standard & Poor's says.
"Interest rates were low in 2012 and 2013, putting margins under pressure; we do not expect this to change in 2014,'' analysts led by Timucin Engin in Dubai wrote in a report published on Monday. "Margins are predicted to be flat or to fall slightly, although some countries may see some improvement."
On the whole, however, Standard & Poor's considers banks in the GCC to be well positioned as the US gradually normalises its monetary policy. That is chiefly due to high economic growth prospects bolstered by revenues from oil. The credit rating agency cited Saudi Arabia, the biggest economy in the Arab world, as one of the countries that will do particularly well, with credit growth expected to be in the range of 10 to 15 per cent.
Of the 26 banks that Standard & Poor's rates in the region, 17 have a stable outlook. The biggest risks to the stability of banks in the region is volatile commodity prices, although most banks have strong capital levels that would mitigate such risks.
"The region's traditional strengths – strong fiscal positions, persistent current account surpluses and limited dependence on external funding – are likely to continue to support sovereign creditworthiness, despite the weak global economic outlook,'' Standard & Poor's said. "We also anticipate that hydrocarbon resources will continue to dominate the region's economies, despite attempts to diversify."
The rating agency is forecasting that the region's three best economic performers this year will be Saudi Arabia, with estimated growth of 4.6 per cent, the emirate of Abu Dhabi at 4.5 per cent and Kuwait at 2 per cent.
mkassem@thenational.ae