Weekly GCC news to 28 Feb: Outlooks on Bahrain's rating and GCC banking sectors

• Brent oil dipped to $72, the lowest this year, on weak economic data.
• The US imposed new sanctions on Iran’s exports and ended a waiver for Chevron in Venezuela.
• Moody’s added a positive outlook for Oman’s banking sector but removed the ones for UAE and KSA. [see (1) below and table]
• Saudi Arabia issued €2.25bn in 7-12-year bonds, including a green tranche.
• SABIC’s earnings disappointed, with a loss in Q4 trimming full-year profits.
• Alat bought a 15% stake in TK Elevator, perhaps worth around $3bn.
• Moody’s put Masdar on review for upgrade, given a reassessment of government support.
• ADGM more than tripled AUM as the number of registered asset managers rose to 134 in 2024.
• Adnoc signed another LNG supply agreement, this time with Osaka Gas of Japan.
• However, QatarEnergy is facing pushback on pricing and terms from potential buyers of its LNG.
• The IMF Article IV report for Qatar included an interesting nowcast GDP model.
• Australia approved Qatar Airways’ purchase of a 25% stake in Virgin Australia.
• Fitch placed Bahrain on a Negative Outlook and sees debt rising to 136% of GDP by 2026. [see (2) below]
• Lebanon’s government firmly won a vote of approval, including support from Hezbollah.
• Israel is seeking to drag out Gaza’s first phase ceasefire rather than move to a permanent one.
• Syria held its National Dialogue event; Israel demanded demilitarization of southern Syria.

These headlines are taken from a 4,500-word report from my economic research service with GlobalSource Partners. Click on any report to get guest access and get in touch to explore a subscription, which also includes a comparative Databank of GCC economic data available (updated weekly) and direct analytical support. Clients include banks, asset managers and governments spanning the GCC, Asia, Europe and the Americas.

Here are two samples from the report:

(1) Moody’s updates its banking sector outlooks

• Moody’s helpfully published its banking system outlooks for all of the GCC countries concurrently this week.
• (It’s important to clarify that these outlooks are just indicative of the direction the sectors are trending in each country, not their absolute strength, and this differs from the sovereign rating outlook, but is influenced by it).
• Oman’s outlook was revised to positive, given the trends for improvement in the operating environment, asset risk and government support (thanks to its improved fiscal position).
• The outlooks for banking in Saudi Arabia and the UAE were revised down to stable, despite some positive drivers. Liquidity was seen as the main concern in Saudi Arabia and profitability in the UAE.
• The outlooks for banking in Bahrain, Kuwait and Qatar remained on stable outlooks. There are strengths and weaknesses in each country. For example, Bahrain has the highest NPL ratio but also the highest liquidity and lowest loan/deposit ratio.
• In Kuwait, profitability is seen as declining, whereas in Qatar asset risk is deteriorating.

(2) Fitch puts Bahrain on a Negative outlook

• Fitch placed the B+ sovereign rating on Negative Outlook, its first action since a 2020 downgrade (BB).
• The justification for the Negative Outlook was the sustained wide deficits (-9.5% in 2024, a rising debt/GDP and interest burden, delays to reforms and a challenging environment.
• Fitch estimates the deficit at -9.5% of GDP in 2024 and -9.0% in 2025. This is wider than its forecast a year ago for -8.2% of GDP in both years.
• Debt to GDP is expected to rise from 130% of GDP in 2024 to 136% in 2026, up from 96% in 2019, when Fitch downgraded to B+, and more than double the median for B-rated sovereigns of just 54%.
• The last rating action on Bahrain was in November 2023, when S&P, which also rates it at B+, lowered the outlook back to Stable, a year after placing it on Positive, given weaker oil prices and little progress on fiscal discipline.
• Moody’s has the lowest rating, having downgraded Bahrain to B2 (equivalent to B) back in 2018.
• The impact of the negative actions by S&P and now Fitch means that the average rating is at the lowest in three years, back to where it was before the rebooted fiscal plan improved the rating agencies’ outlooks; the average rating is also only slightly above its record low.
• Despite the recent negative rating actions, Bahrain’s bonds have performed reasonably well recently and have an average yield of 6.4%, far lower than similarly rated peers, given market expectations of a backstop of support from Gulf neighbors.

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