GCC banking systems well-positioned
DUBAI—The banking systems of the GCC countries are well positioned to cope with government revenue short falls arising from low oil prices and decline in economic growth, according to Institute of International Finance (IIF), a global association of more than 500 leading financial institutions. Despite the underlying strength of bank balance sheets in the region, the IIF expects prolonged low oil prices to weaken asset quality and profitability. Financing costs are expected to rise with shrinking liquidity and further hikes in the US interest rates in the second half of this year.
Economic activity and financial developments in the Gulf oil exporters are interlinked with oil price developments. Given this linkage, low oil prices are likely to result in deterioration in the asset quality and liquidity of banks, and financial sector stress issues may emerge. However these are unlikely to cause any systemic risks to banking sectors in the GCC.—Agencies