The Analysts' View Of 2018

As we take our first steps into 2018, S&P Global Ratings’ managing director and regional head for the Middle East, Hadi Melki, presents an analysts’ outlooks on five sectors across the Gulf

GCC Sovereign outlook 

In 2018, S&P Global Ratings expects the pace of decline in the average GCC sovereign rating to slow.

In 2017, our specialist sovereign credit analysts lowered the sovereign ratings of Bahrain and Oman by two notches each, as the extent of their fiscal and external deterioration continued to worsen beyond our expectations. However, analysts have now factored GCC governments’ varied responses to muted oil prices in the coming years into projections and assume an average Brent oil price of $55 from 2018 onwards.

Our analysts’ concerns were exacerbated by a new risk which emerged in 2017, with tensions escalating following actions by Saudi Arabia, the United Arab Emirates (UAE) and Bahrain, along with other Arab states, to cut diplomatic ties, as well as trade and transport links, with Qatar. Currently S&P Global Ratings’ negative outlook on Qatar reflects the potential consequences of the boycott on the country's economic, fiscal, and external metrics, especially if the boycott is tightened or prolonged.

Banking sector 

We believe that 2018, absent of any materialisation of geopolitical risks, will mark the stabilisation of the financial profiles of Gulf banks. Our banking analysts believe lending growth will remain muted in 2018 given the GCC countries’ low economic growth predictions.

GCC banks’ cost of risk should increase because of the adoption of IFRS9 and the higher amount of restructured and past due but not impaired loans sitting on their balance sheets. However, general provisions accumulated by Gulf banks in the past years should help a smooth transition to the new standard.

In our opinion, GCC banks’ liquidity has improved in 2017 and we do not see a major change in 2018.