LONDON: Fitch Ratings says the outlook for most banks in the Gulf Cooperation Council (GCC)/Middle East region is stable, largely driven by the probability of sovereign support.
Fitch expects loan growth to increase in 2013, as confidence improves and infrastructure projects come on stream, stimulating the local economies, but much also depends on the global economy and regional unrest.
Fitch expects a gradual improvement in profitability at GCC banks on rising fee income, lower impairment charges and cost control even though margins have been under pressure due to low interest rates and subdued volume growth.
Within the GCC, Fitch believes that problem loans have generally peaked and expects lower impairment charges in 2013. Recoverability of these loans and related collateral values will depend on market developments. Non-GCC countries may suffer problems due to continuing political uncertainty, social unrest and economic difficulties.
Capital levels are not generally a constraint, and Fitch believes that in most cases additional capital would be available from shareholders. In recent years, most governments in the GCC have provided support to their banking systems through additional liquidity, and, in a few cases, capital injections.
Fitch expects such support to continue, as capital and liquidity could come under pressure if there is significant loan growth. Fitch’s view of sovereign creditworthiness in the region has generally remained unchanged despite regional unrest, and the outlook on almost all sovereign ratings is Stable.