Rising oil prices to ease funding pressures on GCC banks: Moody’s

Funding pressure on banks in the Gulf Cooperation Council (GCC) countries is easing as government deposits increase in the wake of rising oil prices, Moody's Investors Service said in a new report.

"We expect GCC banks to benefit from continued deposit growth over the coming quarters, driven mainly by government deposits as their oil revenues improve and they tap international markets to fund their budget deficits," said Ashraf Madani, vice-president and senior analyst at Moody's.

Brent crude oil price averaged $43.5 a barrel in 2016 and $54.3 in 2017, up from the lows of around $26 in January 2016.

GCC banks' liquidity could find further support from the expected average credit growth of around 5 percent in the region, the report said. The growth in Qatar is likely to be above this average.

Increased government deposits should continue to support a stable loan to deposit ratio for GCC banks, it added.

Despite improved liquidity funding costs are expected to increase due to rising interest rates, Moody’s said, noting that GCC benchmark interest rates will continue their upward trend in line with US rate rises.

“Rising interest rates will support net interest margins and will benefit banking systems with the highest current and saving accounts (CASA), particularly Saudi Arabia,” the report said.

“Despite increasing funding costs, banks will be able to raise rates on their corporate loans and will benefit from the higher spread to be earned on CASAs,” it added.