The weak economic environment will continue to weigh on the financial profiles of banks in GCC countries in 2017 and 2018, according to S&P Global Ratings.
In a new report, the ratings agency said it believes the three key risks are a difficult operating environment, a higher cost of risk, and lower liquidity.
However, it added that most GCC banks have built sufficient capital buffers to remain resilient to their weakened operating environment.
“The end of the commodities super-cycle has resulted in a significant decline in the economic prospects of the GCC region, implying lower growth opportunities for its banking systems and deteriorating liquidity,” said S&P global Ratings credit analyst Mohamed Damak.
“The end of the commodities boom has also increased the pressure on GCC banks’ asset quality and profitability indicators.”
He added: “Although we expect to see further weakening in some of these indicators in 2017-2018, we think that GCC banks have built sufficient buffers to make the overall impact on their financial profiles manageable.”
Rated banks in the GCC continued to display good asset quality indicators, profitability, and capitalisation in 2016 by global standards, albeit with signs of deterioration from 2015, S&P said.
It added that over the past year, the agency has taken several negative rating actions on banks in the GCC. Most of these were concentrated in Bahrain, Oman, and Saudi Arabia.
“While we have taken a few negative rating actions in other GCC countries, these were primarily for idiosyncratic reasons. Overall, 31 percent of our rated banks in the GCC have negative outlooks or are on CreditWatch with negative implications,” it added.