Moody's credit rating agency gave a negative view of Gulf banks next year, according to a recent report on the sector’s performance and its future prospects in 2021. Indicating that this negative outlook could turn into stable in the event of a strong recovery in economic growth and easing of fiscal control measures, as well as a return to high levels of government spending.
The agency stated in its report that the negative outlook of Gulf banks is driven by the slowdown in economic growth and the continued negative consequences for companies due to the continuing outbreak of the Corona pandemic, which continues to have its effects on all economic sectors.
According to Moody's, the decline in oil revenues has cast a shadow over government deposits in banks, which represent the largest part of the deposit portfolio in the Gulf banking sector, which has affected the financing costs associated with the sector. Moody's expects the profitability of the sector to decline with higher provisions and lower returns, as the average return on assets this year and next year will reach 1.2 percent, compared to an average return of about 1.5 percent in the past 2019.
On the other hand, Moody's expects momentum in mergers within the sector during the coming period, driven by weak economic growth, intense competition, and a large number of small banks facing difficult operating conditions that may ultimately push them towards consolidation.
Source (Arabic cnbc site, Edited)
