GCC banks can absorb loan-loss shock of up to $45bn as pandemic impact lingers: S&P

DUBAI: Gulf banks can withstand credit losses of up to $45 billion, S&P Global said, as businesses and individuals reel from the impact of the COVID-19 pandemic.
Banks in the Gulf Cooperation Council (GCC) have set aside $10.9 billion of additional credit loss provisions in the last 12 months, the report said, to cover the expected negative impact of the pandemic, as well as the drop in oil prices.
“We expect more provisions in 2021 as regulatory forbearance measures are lifted by regulators and banks recognize the full impact of the shock,” the report said.
It comes as the performance of banks remains constrained by low interest rates.
“Despite regulatory forbearance measures, which allowed banks to smoothen the profitability hit, cost of risk for rated banks increased by almost two-thirds – reaching 150 basis points (bps) at year-end 2020 compared with 90 bps at year-end 2019,” the report said.
But banks remain profitable in 2020, the report noted, with only a few showing statutory losses.
“GCC banks’ high contribution of net interest income to total revenue, hefty margins, and sound operating efficiency have also helped their performance,” it added.
Saudi banks have the largest capacity to absorb losses, the analysis said, due to their strong profitability.
Last week, S&P Global said it was expecting GDP growth in the Gulf, slowly recovering from last year’s COVID-19 hit.
It added there will be “long-lasting adverse effects” on the banking sector, but banks in Saudi Arabia and Qatar will be less affected than in other countries.
“Nevertheless, strong, and stable capital buffers, good funding profiles, and expected government support should continue to reinforce banks’ creditworthiness in 2021,” the report concluded.