Moody's, the global credit rating agency, said that the outlook for Gulf banking is "stable," particularly in Saudi Arabia and the UAE.
Major projects in the region, such as Saudi Arabia's National Transformation Program and UAE’s Expo 2020, support growth in banks’ spending and credit, which is expected to witness a 5 percent growth in 2018.
In addition to expectations of the growth of Gulf economies by 2.5 percent next year, thanks to stabilizing oil prices.
Moody's forecasts that real GDP growth in the region will pick up slightly to around two per cent in 2018 from zero per cent in 2017, as oil prices stabilize between $50 and $60 a barrel.
Although fiscal consolidation efforts in the region will persist, key regional infrastructure projects, such as UAE Expo 2020, and the Saudi National Transformation Program will support capital spending and credit growth which should expand by 5 percent in 2018, Moody’s said.
Low cost and stable funding, combined with elevated liquidity buffers will remain a credit strength of GCC banks.
In 2017, governments injected liquidity from international debt issuances, thereby easing a lengthy funding squeeze which had stemmed from low oil prices.
“The strong financial fundamentals in the Gulf banking systems makes the industry more resilient to lower profitability and weaker loan quality issues,” said Olivier Panis, a vice president and senior credit officer at Moody’s.
“Nonetheless, fiscal and geopolitical risks pose challenges in Qatar, Oman and Bahrain.”
Individually, in the UAE, Saudi Arabia and Kuwait, which account for around three quarters of GCC banking assets, the outlook is stable.
Saudi Arabia accounts for 30 percent of the GCC's banking assets ($ 2.04 trillion), the agency said. Adding that the kingdom’s bank assets amounted to $ 612 billion in June 2017, confirming its stable view of for the Saudi banking sector.
As for the sukuk, Islamic Bonds, activity in the Gulf countries in general, Moody's expected the healthy activity to continue into 2018. It also predicted total borrowing levels would rise to $ 148 billion in 2018.