GCC banks’ capital to remain sound despite fall in profits – ZAWYA

GCC banks’ capital to remain sound despite fall in profits – ZAWYA

Banks in the GCC region will see profits fall this year as economies shrink amid the coronavirus outbreak and lower oil prices but have adequate capital underpinning their solvency, Moody's Investors Service said in a report.The pandemic has hit hotels and restaurants, airlines, automotive industries, real estate, trade, tourism and retail sectors in particular, with small and mid-sized enterprises being the most vulnerable.Moody's expects real non-hydrocarbon GDP in the GCC to contract between 3.5 per cent and 5pc in 2020.UAE and Bahrain have the largest non-oil sectors relative to the size of the economy and will likely be impacted the most.The economic contraction in the non-hydrocarbon economy will translate into significantly reduced banking activity."The economies of all six GCC countries will contract, sapping the banks' two main income streams - interest on loans, and fees and commissions - while provisioning charges for loan losses will rise sharply,“ said Nitish Bhojnagarwala, vice-president and senior credit officer at Moody's."The banks' capital will remain adequate, however, underpinning their solvency.“The banks will feel the effects through rising non-performing loans, requiring higher provisioning charges.Stimulus packages launched by GCC governments will ease, but not fully offset, the burden on borrowers.Both lending demand and lending appetite among