Limited impact on banks and insurance industry

Banks and financial institutions across the GCC are expected to experience relatively muted impact of the coronavirus in China, according to rating agency Standard & Poor’s (S&P). “We expect the impact of the new coronavirus on banks to be low, and come indirectly through the overall impact on GCC economies, which we expect to be minimal,” said Mohammad Damak, Director of Research at S&P

The banks in GCC have little direct exposure to Chinese companies. However, should the outbreak put pressure on important sectors, such as real estate, the effects could surface in the next few months. This is particularly relevant for banks in the UAE and Dubai, but the analysts do not currently anticipate any rating changes.

For the insurance sector, S&P analysts do not see any immediate impact on insurers’ underwriting results in the region. However, stronger-than-expected hits to GCC economies or extreme asset price volatility could hurt insurers’ balance sheets.

S&P Ratings expects recent developments could weigh on growth prospects in the GCC, already affected by low oil prices and geopolitical uncertainty. Analysts said if the virus continues to spread, there is a risk that the economic impact could increase unpredictably in GCC government spending and economic activity with credit implications for key sectors such as real estate, retail and tourism that could eventually have adverse impact of credit quality and profitability of banks.