Will Gulf banks suffer from ‘long-COVID?’

DUBAI: Gulf banks are expected to experience a long lasting impact from the pandemic as asset quality deteriorates, Moody’s said.
Saudi and Qatar’s banking sectors will be less impacted than those in the UAE, Oman, and Bahrain, the rating agency said.
“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,” said S&P Global Ratings credit analyst Mohamed Damak. “That said, strong and stable capital buffers, good funding profiles, and expected government support should continue to support banks’ creditworthiness in 2021.”
As many businesses have ground to a halt over the last year, companies have struggled to repay loans on time while individual borrowers have also defaulted on payments, forcing banks to put more money aside to cover potential losses.
Moody’s sees the oil price averaging $60 per barrel this year and next while big ticket events such as Dubai Expo and the FIFA World Cup in Qatar next year are expected to spur economic growth.
The regional real estate sector is likely to remain subdued with Dubai’s supply overhang preventing any short to medium term recovery.
However the Saudi mortgage sector has emerged as one potential bright spot in the region.
“In Saudi, mortgage lending continues to expand due to the authorities’ objective of increasing home ownership, while in Qatar government projects are boosting growth,” Moody’s said.
After soaring by 60 percent last year, the cost of risk of regional lenders is likely to remain elevated this ye