DUBAI- Rating agency Moody's has changed its outlook to "negative" from "stable" on the banking systems of Saudi Arabia, United Arab Emirates, Kuwait, Qatar, and Bahrain, and kept its negative outlook on Oman's system, because of the oil price collapse and coronavirus outbreak.
Oil prices are significantly below where they should be to balance the budgets of the six-nation Gulf Cooperation Council (GCC), said the agency.
"This will weigh on government revenues and lead to spending cutbacks that will rein back growth in the non-oil sectors of the economy where the banks do most of their business."
Also, banks will see a reduced flow of deposits as government revenues account for the largest deposits in most GCC banking systems, it said.
A reduction in business activity due to restrictions on movements aimed at curbing the spread of the coronavirus will likely lead to an increase in defaults on bank loans and rising loan-loss provisioning, Moody's said.
Stimulus measures launched by regional governments and central banks will only partly offset the economic impact of the coronavirus pandemic, according to the agency.
Moody's expects economic growth to be hit the hardest in Saudi Arabia, UAE, Bahrain and Oman, while it expects it to be flat in Qatar and at around 2% in Kuwait.
Banking sources told Reuters this week that Gulf banks are limiting their lending to minimise potential losses from the coronavirus crisis and an expected squeeze in dollar liquidity due to lower oil prices.
(Reporting by Davide Barbuscia, Editing by William Maclean) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: email@example.com))