Gulf Cooperation Council (GCC)

Countries of the participant of council

For September, 2019 member countries of the Gulf Cooperation Council (GCC) are among:

• Bahrain,
• Oman,
• Kuwait,
• UAE,
• Qatar and
• Saudi Arabia.

2019

Deficit of borrowed funds forces business to look for alternatives to bank loans

For September, 2019, despite the general improvement of an economic situation in the Middle East, business still experiences difficulties with attraction of financing in member countries of the Gulf Cooperation Council (GCC). The problem of limited access to borrowed bank funds is particularly acute for the small and medium enterprises of the region (MSP). Thanks to increase in prices for oil volumes of issue of loans increased a little lately, however still considerably lag behind mean historical values.

Such situation developed for several reasons. When prices of oil sharply fell, the states of SSAGPZ began to pour in economy money from reserve funds – now when the prices were recovered, these injections stopped that significantly "cooled" the market. One more reason – normalization of monetary policy of U.S. Fed. Since 2013 in which FRS declared the beginning of process of normalization the Central banks of the countries of SSAGPZ gradually raise interest rates for loans after a key interest rate of the American Federal Reserve System.

Toughening of conditions of access to borrowed funds forces entrepreneurs to address alternative financing sources – bonds, different instruments of trade financing and initial public offering (IPO).

Volumes of crediting grow, but insufficiently quickly

As it often happens, for September, 2019 a pacing factor on which the policy of Middle Eastern banks – price fluctuations on oil depends.

With 2013th on the 2015th volumes of non-state financing of business grew in member countries of SSAGPZ on average for 9% a year. In the first quarter the 2019th Middle Eastern and North African banks continued to toughen conditions of issuance of credits therefore in the nearest future growth of volumes of crediting will hardly accelerate, experts of Coface noted.

The volume of money in circulation grows

Data on money supply in the countries of SSAGPZ draw a similar picture: the volume of money in circulation grows, but slowly. The volume of liquid means in the region in many respects is defined by prices of oil and the policy of U.S. Fed as exchange rates of national currencies of the countries of SSAGPZ (except for Kuwaiti dinar) are recorded and tied to U.S. dollar.

The expected mitigation of monetary policy of U.S. Fed against the background of deceleration of growth of the American economy promises to create favorable conditions for growth of volumes of bank lending in SSAGPZ countries.

Drivers of development of the banking sector in SSAGPZ countries

Bahrain. In 2018 Saudi Arabia, the UAE and Kuwait promised to select to Bahrain 10 billion dollars to save it from potential debt crisis. Such injection of liquid means will provide banks with money supply and will promote growth of crediting of the enterprises. At the same time, however, it is worth remembering that the most part of Bahraini banks is focused on domestic market therefore rather low dynamics of growth of the non-oil industries of national economy can have an adverse effect on the cost of bank assets and worsen climate in the sector.

Oman. In Oman development of the banking sector is interfered by low growth rate of national economy. Besides, Oman (as well as Bahrain) suffers from rather acute budget and trade deficit that worsens climate in the banking sector. Despite rather high volume of the state investments and the general improvement of economic climate in the Middle East, perspectives of the banking sector of Oman remain less optimistic, than in other countries of SSAGPZ.

Kuwait. The authorities of Kuwait undertake active measures for diversification of economy and decrease in dependence of the market on oil that favorably affects the banking sector of the country. About 13% of the total amount of deposits whereas, for example, in Oman – 34%, in Qatar – 30%, in Saudi Arabia – 20% are the share of the state deposits.

UAE. In the UAE real estate prices fall, at the same time the number of delays of payments in building industry increases. It, in turn, leads to growth of number of the unattended credits – it is expected that at the end of 2019 their share will make 6% of total amount of the loans issued by banks. At the same time the program of the state support directed to stimulation of the national market promotes growth of volumes of crediting and interest rates that can give to the banking sector the chance to increase net profit.

Qatar. The situation in the banking sector of the country is gradually stabilized – foreign deposits return to the country. So, for example, in the first quarter the 2019th their volume grew by 20% in comparison with the same period of previous year. The majority of foreign deposits, however, is placed for a period of up to a year that does them by rather volatile financing source which is strongly depending on mood of investors.

Saudi Arabia. In the country the volume of the state deposits gradually increases, however the sector is vulnerable to any price fluctuations on oil – if they fall, the authorities can change budget policy and take a defensive position that, in turn, for certain will lead to deceleration of growth rates of crediting.

2018: Oil revenues - the main source of filling of budgets

The countries of SSAGPZ achieved considerable success in diversification of economy, however oil sales are still the largest article of their budget income. So, in 2018 "oil" income was about 70% of the total amount of receipts in the state budget of Saudi Arabia. In Oman and Bahrain this indicator is equal to about 80%, in Kuwait and Qatar – 60%, in the UAE – 55%.