COVID-19 to take a heavy toll on GCC bank profits in 2020, says Moody's
Slowing business activity across the GCC from the coronavirus outbreak amplified by falling hydrocarbon revenues are expected to impact the financial performance of banking sector, according to rating agency Moody’s. “The combination [of slowing economies and low oil prices] will impede lending growth, narrow interest margins and lead to a sharp increase in provisioning for bad loans, particularly given the new IFRS 9 expected credit loss accounting regime that requires extensive forward-looking provisioning for souring loans,” said Badis Shubailat, Analyst at Moody’s. The rating agency sees interest margins, the main source of revenue for the banks to narrow as central bank interest rate cuts and higher borrower delinquencies dent yields on lending. At the same time, deposits will cost banks more in interest as lower oil prices slow inflows of government deposits into the banks.