Moody's credit rating agency revised its outlook from “stable” to “negative” for banking systems in Saudi Arabia, UAE, Kuwait, Qatar, and Bahrain, while maintaining its negative outlook for the banking system in Oman, due to the drop of the oil price collapse and the outbreak of the Coronavirus.
According to the agency, oil prices are well below the level it should be to achieve balance in the budgets of the Gulf Cooperation Council states as this will put pressure on government revenues and lead to spending cuts, which will undermine growth in the non-oil sectors of the economy in which most of the activities are practiced by banks.
Banks will witness a decrease in the flow of deposits, as government revenues constitute the largest amount of deposits in most banking systems in the Gulf Cooperation Council countries. According to Moody's, a decline in business activity due to movement restrictions aimed at curbing the spread of the Coronavirus will likely lead to a default increase in bank loan repayments and an increase in provisions for loan losses. Moody's expects that economic growth will be more affected in Saudi Arabia, the UAE, Bahrain, and Oman, while it expects its stability in Qatar and will be at about 2% in Kuwait.
Source (The Economic Bulletin Website, Edited)
