CGI Gulf Insights of the Week Aug 09 2020

  • ByCGI Gulf Insights of the Week
  • Sunday, 09 August 2020
  • Published inAugust 2020
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Country Risk Update - Saudi Arabia

Risk Indicator  - DB4a
Risk Level        - Moderate

Ratings Trend  Deteriorating rapidly

Weak oil prices, the OPEC+ production quota and government austerity are sending the economy into recession, undermining company payment performance. Weak oil prices over the next five years will see the government forced to liberalise the economy, opening up opportunities for cross-border investment and trade. Longer-term growth will be driven by government reforms under its Vision 2030, which aims to reduce dependence on oil export revenues and boost the private sector.
Market Overview
COVID-19 impact: UAE’s credit demand takes a hit in second quarter of 2020
The UAE banks witnessed a decline in credit appetite both for business and personal loans during the second quarter of 2020, according to the Credit Sentiment Survey of the Central Bank of UAE. The survey, a quarterly publication of the CBUAE collects information from senior credit officers of all banks and financial institutions extending credit within the UAE. Although results do not reflect the views of the Central Bank, the information collected constitutes qualitative responses of banks to a series of questions relating to credit conditions in the most recent quarter and expectations for the upcoming quarter.
Central Bank of UAE relaxes prudential ratios to enhance Targeted Economic Support Scheme
A surge in loan impairments caused by the impact of COVID-19 and an economic slowdown resulting from low oil prices have seen a sharp decline in profits for UAE banks in the first half of 2020. In addition, a sharp contraction in interest margins resulting from a low-interest environment too, has hurt the profitability of banks. Despite the reopening of the economy, challenging operating environment posed by economic contraction resulting from COVID-19 and low oil prices are expected to linger and banks are likely to face the burden of rising loan impairments.
India keeps banking interest rate at record low 4%
India's central bank kept interest rates unchanged on Thursday, opting for inflation to cool before taking further action to boost a fragile economy. The Monetary Policy Committee voted to keep the benchmark repurchase rate at a record low of 4 percent, Governor Shaktikanta Das said in an online broadcast. Economists were split on the decision, with half of the 44 surveyed by Bloomberg predicting a 25 basis-point reduction, one predicting a 50-point cut and the rest seeing no change. The Reserve Bank of India has already reduced the repo rate by a total of 115 basis points since February, on top of the 135 basis points in an easing cycle last year, from 6.50 percent.
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