Moody’s downgrades GCC banking systems

Falling_oil_pricesRating agency Moody’s has downgraded the banking systems of the Gulf Cooperation Council (GCC) as a result of the oil price collapse and the coronavirus outbreak. It has changed its outlook from stable to negative for Saudi Arabia, UAE, Kuwait, Qatar and Bahrain. The only exception is Oman, which was already rated as negative after several downgrades. The main drivers for Moody’s action are similar for each state – namely the dual blow of a sharp drop in oil prices and a pandemic, both of which are expected to slow economic activity and reduce government coffers. The rating agency’s report does cite some additional factors for each state, such as low interest rates in Saudi Arabia, rising problem loans in Qatar and Kuwait, the negative impact of the coronavirus on the UAE’s non-oil sectors such as tourism and real estate and the Bahrain government’s weakening fiscal position. Moody’s report also notes that GCC governments and central banks have “put in place far-reaching support measures designed to shore up the financial positions of households and businesses” but it does not expect these will wholly offset the adverse impact of the coronavirus-induced shutdown. However Moody’s does recognise that most GCC banking systems have “substantial” capital buffers which will provide a “solid base to absorb unexpected losses” as well as “a very high likelihood of government support if needed”. © 2020 funds global mena

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