Fitch Rates GCC Banks As Stable In 2015 Despite Oil Price Slide

Fitch Ratings has issued a stable outlook for all banks in the GCC in 2015, largely driven by the probability of sovereign support in times of trouble.

The rating comes as brent crude price dropped below $60 per barrel on Tuesday, triggering fresh panic selling across bourses in the Gulf. Around $49 million of stock market value was wiped out from GCC economies as investors lost confidence in a region largely dependent on oil revenues.

Fitch justified its ratings for Gulf banks, saying that a major growth driver across these countries was government funded infrastructure projects, designed as a means to diversity local economies.

The ratings agency added that it does not expect GCC governments to postpone or cancel the megaprojects in the event of a free fall in oil prices in 2015.

However, it warned that a deeper fall in oil prices could start to put negative pressure on the sector outlooks in some smaller GCC economies.

Among the Gulf countries, Fitch said that Kuwait should accelerate and sustain its public spending to impact the banks’ viability ratings. The agency also expects a positive impact from economic growth in Saudi Arabia, although this is less likely to have an impact on banks’ viability ratings, considering their current high levels.

Fitch also believes that problem loans have peaked within the GCC and impairment charges will continue to fall, leading to higher profitability among lenders. But it said that any further recovery will depend on economic growth.

Meanwhile, capital levels are expected to remain sound unless there is significant loan growth, the ratings agency said. In addition, GCC banks also enjoy ample liquidity, supported by substantial deposits placed by the governments and related entities, Fitch said.

Across the Middle East, ratings in banks across countries such as Jordan, Lebanon and Egypt have been impacted negatively due to the ongoing political unrest though Egypt’s banks have received a stable rating.

The ratings agency said that growth prospects in Egypt are improving with the more stable political outlook and credit risk in the country will eventually reduce.

However, Fitch said that other Middle Eastern countries might continue to suffer from ongoing political uncertainty and economic difficulties. It said that any further recovery in these countries will depend on political solutions to the current unrest.