Saudi banking sector to be less impacted by COVID-19 in GCC region: S&P

The Saudi flag 

Saudi Arabia and Qatar's banking sectors will be less impacted than those in the UAE, Oman, and Bahrain, while in Kuwait the story will depend on the evolution of the fiscal impasse, Standard & Poor’s (S&P) said in a recent report.

“We expect muted lending growth in all GCC countries except Qatar and Saudi Arabia,” S&P added.

Mortgage lending in Saudi Arabia continues to expand due to the authorities’ objective of increasing home ownership, while in Qatar government projects are boosting growth.

Moreover, GDP growth in the GCC countries is expected to slowly recover from last year’s sharp recession triggered by the COVID-19 pandemic and low oil prices.

Although vaccination programs are progressing, recovery of the aviation and hospitality sectors will take time, with likely significant downside risks from further waves and mutations of the virus.

“We expect banks' asset-quality indicators will continue to deteriorate and cost of risk to remain high as they start recognizing the true impact of 2020 and forbearance measures are lifted in second-half 2021,” S&P added.

Meanwhile, given continued low interest rates, banks’ profitability will remain low in 2021 and beyond, with some potentially showing losses in 2021.