Saudi banking sector outlook remains stable: Moody’s

Moody’s Investors Service has maintained its outlook for banks in Saudi Arabia at stable, supported by “increased government spending and strong capital buffers,” the ratings agency said in a recent report.

The stable outlook for the Kingdom’s banks, which individually accounts for 30 percent of GCC banking assets, is supported by increased government spending and projects to diversify economic output; easing of funding squeeze due to sovereign international bond issuances; liquidity conditions remaining solid; and capital buffers staying strong. 

However, the ratings agency believes that profitability and loan quality will “weaken from high levels due to slowing economic growth.”

Despite Saudi Arabia making large spending cuts and implementing fiscal reforms, the financial balance will remain in deficit, as with most of the GCC sovereigns, in 2018. 

While the fiscal deficit in the Kingdom “will narrow to 7.5 percent in 2018 from 8.9 percent in 2017,” indebtedness will remain “very low at 26 percent”, as the ongoing fiscal consolidation efforts constrain economic growth, the report said.

Elsewhere in the GCC, Moody’s also maintained a stable outlook for banks in the United Arab Emirates and Kuwait, counterbalancing weaker performance in Bahrain and Oman, which are facing “acute fiscal challenges”.

Saudi Arabia, the UAE, and Kuwait together account for 75 percent of GCC banking assets, according to the report.

Moody’s expects the real GDP in the GCC region to “pick up slightly to around 2 percent in 2018 from zero percent in 2017.”

Economic growth will be driven by oil prices stabilizing between $50 and $60 a barrel, in addition to major regional infrastructure projects such as the Saudi National Transformation Programme and UAE Expo 2020, driving capital spending and credit growth by an estimated 5 percent next year.