Qatar possesses greater financial buffers and continues to fund large government projects, in preparation for the 2022 FIFA World Cup; BMI Research said, and noted that the country faced lower economic risks compared to other countries in the region.
In its latest regional overview, the Fitch Group company said commercial banks across the Middle East and North Africa (Mena) have entered a "protracted period of slower growth".
In the GCC, fiscal retrenchment amid low oil prices is impacting deposit and lending growth, while liquidity is tightening.
In Egypt, Lebanon and Jordan, political instability and lacklustre macroeconomic environments will continue to weigh on banks' performances.
“Throughout the region, governments will issue domestic debt to cover rising or recurring fiscal deficits, providing some respite for their respective banking sectors,” BMI said.
BMI believes that the boom years for commercial banks in Mena are over, and expects to see slower asset growth across the board over the next five years.
Having withstood the shock of lower oil prices in 2015, GCC economies are entering a protracted period of slower economic growth and fiscal retrenchment which will impact deposit growth and lending opportunities for banks. Egypt, Lebanon and Jordan will remain mired in a storm of challenging macroeconomic and political environments.
BMI forecasts asset growth in the GCC banking sector to average 6% y-o-y between 2016 and 2020, compared to an average of 17% y-o-y over the past decade. The slowdown will be less pronounced in Lebanon, Jordan and Egypt, with the average growth rate declining from 10% between 2006 and 2015, to 6% over the next five years.
GCC banks have entered a "structural slowdown" that it expects to last over the next five years at least. Having relied on massive government spending plans financed by oil revenues for growth over the past decade, banking sectors across the gulf will suffer from fiscal retrenchment brought about by the prolonged slump in global oil prices.
BMI forecasts Brent to trade at $60/barrel on average over the next five years compared to $102/b between 2010 and 2014.
GCC banks will be "hit" on two fronts – governments will continue to draw on funds deposited in their respective domestic banking sectors to cover large fiscal deficits (public sector deposits make up around 10-35% of banks non-equity funding in the GCC), while declining government spending will reduce lending opportunities.
In March, Moody's downgraded 26 GCC banks, followed by S&P and Fitch Ratings, which downgraded respectively five and seven Saudi banks in April.
Low oil prices and fiscal retrenchment are also affecting the private sector, further reducing domestic lending opportunities.
“The slowdown is unequal throughout the GCC,” BMI points out. Qatar and Kuwait, which possess greater financial buffers continue to fund large government projects, in preparation for the 2022 FIFA World Cup and as part of the new government's five-year plan, respectively.
On the other side of the spectrum, Oman and Bahrain are the most at risk, given their governments' low financial buffers, and the overreliance of domestic banks on public deposits (the latter accounted for more than 34% of total deposits in Oman in 2015).
On a more positive note, GCC governments' reliance on debt will help banks to diversify their revenue stream, the report said.
In addition, despite the slowdown, “systemic risks” in the GCC banking sectors are low; capitalisation is generally solid and sovereign support is elevated, BMI said.