HIDDEN IMPACT OF LOWER OIL PRICES: TOUGH FUNDING CONDITIONS FOR GCC BANKS

The economic stagnation from low oil prices is affecting liquidity conditions across Gulf Cooperation Council (GCC) countries, according to a study released by global credit insurer Coface. Government revenues have slowed, liquidity in the banking sector is tight, funding costs are higher and economic growth has dragged to a 2.1% forecast for 2017.
Interbank rates have increased and money supply has slowed across the region. This situation has been particularly concerning for Oman and Bahrain, which have the lowest fiscal and external buffers in the region. This means that tightening liquidity conditions have had a deeper impact for corporate financing in these two countries compared to stronger economies such as the UAE and Saudi Arabia.
Overall, GCC region loan growth is expected to register a solid growth of 4.9% in 2017. But this is far lower than the average annual growth of 9.2% recorded between 2012 and 2016.
Seltem Iyigun, Coface economist, commented: “Restricted resources will make banks more selective in granting loans in 2017 and 2018. This would also limit access to funding for corporates, especially for small and medium-sized companies, as they represent higher risks.”