Outlook 2021: Challenging outlook offers varied picture for GCC banks

Outlook 2021: Challenging outlook offers varied picture for GCC banks

As we are heading towards the end of a whirlwind year, GCC banks still have a long way to go to recover from the shockwaves of the Covid-19 pandemic.

Our base case scenario is that a Covid-19 vaccine will be widely available by around mid-2021 and that the oil price will stabilise at an average of $50 per barrel. We also foresee that the GCC economies will expand by an average of 2.4 per cent in 2021, compared with a contraction of 5.6 per cent in 2020.

However, despite these glimmers of light, we anticipate that a few banks will suffer losses this year and the next, and that the overall GCC banks' profitability will take a hit in 2020 and 2021.

Rated banks in the GCC face an uphill struggle in the next 18 months due to the protracted nature of the economic recovery and the expected gradual withdrawal of regulatory forbearance measures. We expect that lending growth will remain muted, except for Saudi Arabia, where mortgages have been expanding rapidly on the back of a government initiative to increase home ownership in the country. The cost of risk will continue increasing as problematic asset recognition accelerates in the absence of