GCC banks will start 2023 on solid footing: S&P

GCC banks will start 2023 on solid footing: S&P

The earnings performance of banks in the Gulf Cooperation Council (GCC) will recover almost to pre-pandemic levels in 2022, thanks to the economic recovery, said S&P Global Ratings in a report.

Banks are also getting a boost from high oil prices, improving confidence, and for some countries – specifically Saudi Arabia – large government-sponsored projects.

S&P expects Bahrain's economic recovery to continue in 2022 because of higher oil prices and increasing regional economic activity. Further deterioration in banks' asset-quality indicators will remain contained as the economy recovers.

Although its contribution to the overall funding profile is moderate, external debt could prove vulnerable to domestic or regional stresses. A mitigating factor is that a large portion of the banking sector's external funding is from GCC countries and likely to remain stable, assuming no domestic or regional stresses.

Cost of risk

S&P expects cost of risk to return to normalised levels for most countries and higher interest rates to support banks' bottom lines and foresee no major regional mergers or acquisitions on the horizon.

But things look less certain for 2023. S&P sees three main sources of risk -- the expected slowdown of the global economy, which could affect the region primarily through commodity prices; banks' exposure to