Fitch Ratings-London: Higher interest rates and oil prices will support overall solid economic conditions for Middle East (ME) banks, says Fitch Ratings in its 2024 Outlook report. This underpins the neutral sector outlook for ME banks, reflecting our expectation that the banks will continue their sound profitability, solid liquidity, and adequate capital buffers for their risk profiles, while asset quality should remain broadly stable.

The majority of ME banks have investment-grade Issuer Default Ratings (IDRs), and these are mainly driven by potential sovereign support (65%). The large distribution of IDRs, from ‘AA-’ to ‘CCC+’ (the lowest being mostly in Iraq), mostly reflects the wide sovereign rating distribution.

The high proportion of Stable Outlooks partially reflects rating downgrades in 2023, and Outlooks stabilising at lower rating levels. The Positive rating Outlooks relate to the Qatari banks, which reflect the Outlook on the sovereign, in turn driven by improvements in its external balance sheet given higher oil revenue and improving debt/GDP forecasts. The one Rating Watch Negative is an idiosyncratic case in Iraq.

High oil prices should keep reasonable levels of liquidity in most GCC banking systems in 2024. Higher interest rates, supported by high levels of low-cost deposits and muted loan impairment charges, will continue to benefit profitability. Moderate expected loan growth means capital ratios are likely to remain mostly unchanged in 2024. Fitch does not expect significant deterioration in the asset quality metrics of ME banks in the higher interest rate environment due to their solid operating environments and generally robust levels of provisions. The ME is over-banked and we expect consolidation to continue to change the banking landscape.

The report, Middle East Banks Outlook 2024, is available at www.fitchratings.com

Contact:Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@thefitchgroup.com

Additional information is available on www.fitchratings.com