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Slow Gulf economic recovery to have long-lasting impact on banks – S&P By Reuters

© Reuters. FILE PHOTO: A man walks at the Dubai International Financial Centre in Dubai

DUBAI (Reuters) – Economic recovery from the coronavirus crisis in the oil-rich Gulf region will be slow, weighing on the region’s banking sector, S&P Global (NYSE:) Ratings said.

Gulf countries fell into a sharp recession last year as the COVID-19 pandemic affected vital non-oil economic sectors such as hospitality, commerce, and real estate, while lower oil prices hurt state revenues.

Events like Dubai Expo this year and the World Cup in Qatar next year, as well as a rebounding oil market, will provide some support but growth will remain below historical levels, S&P said.

“Indeed, most countries will not return to 2019 nominal GDP before 2023, with an even longer road for Saudi Arabia,” it said in a report on Sunday.

Recovery in sectors such as aviation, tourism, and real estate will take time, and while vaccination programmes are progressing, there are downside risks due to mutations in the novel coronavirus.

These factor swill weigh on bank’s asset quality with non-performing loans expected to increase, as well as on profitability, with some banks expected to post losses in 2021.

“We think that the measures implemented by most central banks in the region are supportive of liquidity but do not remove or reduce credit risk from the balance sheet of banks (yet),” said S&P.

“Cost of risk will remain elevated following a jump of 60% in 2020 as banks set aside provisions in preparation for more stress.”

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