GCC banks set for positive earnings on high oil price, rate hikes – S&P

GCC banks set for positive earnings on high oil price, rate hikes – S&P

S&P Global Ratings expects profitability for banks across Kuwait, Saudi Arabia, Qatar, and the UAE to almost reach pre-pandemic levels by year-end 2022, spurred by high oil prices, interest rate hikes, and new public-sector-backed projects.

"In the second half, we forecast a more visible strengthening of regional banks' interest margins and a manageable pick-up in cost of risk, amid lingering effects from the COVID-19 pandemic via loans that benefited from support measures and were then restructured. Combined, these factors will be a net positive for banks' earnings," credit analyst Zeina Nasreddine said in a new report on Thursday.

Gulf central banks raised their key interest rates on Wednesday after the U.S. Federal Reserve delivered its third consecutive 75bps hike.

According to S&P, in the first half, Kuwaiti and Saudi banks showed the strongest performance, with earnings already almost reaching pre-pandemic levels, while Qatari and UAE banks are taking a bit longer to recover.

However, their strong momentum so far in 2022 may not be enough to shield them from adverse developments in 2023 as oil prices are likely to average $85 per barrel (/bbl) next year compared with $100/bbl for the remainder of 2022, it said. Moreover, increased chance of a U.S. recession, escalating