The COVID-19 pandemic, coupled with last year's oil slump, affected all banking systems. According to S&P Global Ratings, this impact did not have the same dimensions in all member countries of the Gulf Cooperation Council (GCC).
Among them, the ranking places Saudi Arabia as the strongest nation in its peer group, and praises the government's stance in adopting supportive measures that helped reduce the effects of the crisis on the banking system.
"We expect GCC banks' asset quality indicators to deteriorate only slightly thanks to regulatory and government support measures and improving economic confidence," the ratings firm said in its report.
As confirmed by S&P Global Ratings in its assessment, Saudi banks are expected to see a revival in profitability indicators, stemming from the benefits that mortgages and the implementation of Vision 2030 (the development plan for the future in various non-oil sectors) provide to Saudi banks.
Saudi banks' profitability was slightly better than expected, reaching a return on assets of 1.6% at 30 June 2021, compared to 1.3% at the end of 2020, according to S&P's analysis.
At the other end of the spectrum, the ranking places the United Arab Emirates as the most vulnerable banking system within the GCC countries, due to the impact of the pandemic on key sectors such as hospitality, real estate and trade.
Rising oil prices and vaccination against COVID-19 have improved the data at the start of the year, "We expect this trend to continue in the second half of the year, with banks reporting slightly better results for the full year 2021," confirm S&P analysts.
For the country's development, government reinforcement is needed "by injecting the necessary liquidity and capital support".
Kuwait is another GCC nation with poor banking system prospects. The financing of the country's deficit is an unresolved issue between the government and parliament, which together with adjustments in public spending could have severe consequences for the country's financial stability.
"Other issues include Qatar's growing net external debt and Kuwait's fiscal stagnation, which may not only damage the economy but also call into question the government's ability to support the banking system in a predictable and timely manner," S&P Global Ratings adds.
Overall, "GCC banks' profitability stabilised in H1 2021 due to a still-high cost of risk and stable interest margins," the report states.