Gulf Countries Banking Sector Doing Well

The GCC banking sector is on a solid path. S&P Global expects banks in this region to sustain strong asset quality, profitability, and liquidity until at least 2025.

Why are they doing so well? A big part of this is their strong capitalization and well-balanced finances. Even if interest rates dip, these banks are likely to hold up well.

However, they do face some risks. Geopolitical tensions or plummeting oil prices could threaten their creditworthiness. Yet, banks in the GCC already have high ratings, showing they're pretty resilient.

Oil prices play a crucial role. Brent oil is predicted to average around $75 per barrel between late 2024 and 2027, which bodes well for GCC economies.

Countries like Saudi Arabia, Qatar, Bahrain, and the UAE are also growing their non-oil sectors and expanding gas production, which boosts economic stability.

Interest rate changes are another factor to watch. The US may cut rates, and GCC central banks are expected to follow suit.

This could slightly affect bank margins, possibly reducing them by 20-60 basis points, depending on the country. But this impact should be manageable.

In terms of asset quality, expect it to stay stable with non-performing loan ratios at 3-4%. Regulatory measures and growing economies help keep these numbers in check.

However, some markets, such as Qatar, face pressures like an excess real estate supply post-World Cup.

Finally, low labour costs and increasing digitalization are boosting efficiency across the sector, paving the way for continued growth and resilience through 2025.

All in all, the GCC banks seem set for a robust performance, thanks to their strong economic underpinnings and strategic management.