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INTERNATIONAL MONETARY FUND
MIDDLE EAST AND CENTRAL ASIA DEPARTMENT
DEPARTMENTAL PAPER
Assessing Banking Sector Vulnerabilities in the Gulf Cooperation Council in the Wake of COVID-19
Prepared by an IMF staff team led by Abdullah AlHassan, and comprising Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Tian Zhang
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Copyright ©2022 International Monetary Fund
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Names: AlHassan, Abdullah, author. | Benmohamed, Imen, author. | Bibolov, Aidyn, author. | Ugazio, Giovanni, author. | Zhang, Tian, 1991-, author. | International Monetary Fund. Middle East and Central Asia Department, issuing body. | International Monetary Fund, publisher.
Title: Assessing banking sector vulnerabilities in the Gulf Cooperation Council in the wake of COVID-19 / prepared by an IMF staf team led by Abdullah AlHassan, and comprising Imen Benmohamed, Aidyn Bibolov, Giovanni Ugazio, and Tian Zhang.
Other titles: Departmental paper (International Monetary Fund).
Description: Washington, DC : International Monetary Fund, 2022. | March 2022. | DP/2022/003. | Departmental paper series. | Includes bibliographical references.
Identifiers: ISBN 9798400200496 (paper)
Subjects: LCSH: Banks and banking -- Middle East | COVID-19 (Disease) | Petroleum industry and trade -- Middle East
Classification: LCC HG1496.A44 2022
The Gulf Cooperation Council region faced a significant economic toll from the COVID-19 pandemic and oil price shocks in 2020. Policymakers responded to the pandemic with decisive and broad measures to support households and businesses and mitigate the long-term impact on the economy. Financial vulnerabilities have been generally contained, reflecting ongoing policy support and the rebound in economic activity and oil prices, as well as banks entering the COVID-19 crisis with strong capital, liquidity, and profitability. The banking systems remained well-capitalized, but profitability and asset quality were adversely affected. Ongoing COVID-19 policy support could also obscure deterioration in asset quality. Policymakers need to continue to strike a balance between supporting recovery and mitigating risks to financial stability, including ensuring that banks’ buffers are adequate to withstand prolonged pandemic and withdrawal of COVID-related policy support measures. Addressing data gaps would help policymakers to further assess vulnerabilities and mitigate sectoral risks.
The authors are grateful to Daniel Kanda and Zeine Zeidane for the overall guidance. Special thanks also go to Nordine Abidi, Zulma Barrail, Timothy Callen, Ender Emre, Burcu Hacibedel, Tristan Hennig, Yevgeniya Korniyenko, Moheb Malak, Justin Matz, and Fabian Valencia for very helpful comments and suggestions. We thank Esther George for production assistance.
| ISBN | 979-8-40-020049-6 |
| JEL Classification Numbers: | G21, G28, G32, G33 |
| Keywords: | COVID-19, banking performance, frms performance, sovereign-banks-economy nexus, bank asset quality |
| Author’s E-Mail Address: | AAlhassan@imf.org; IBenmohamed@imf.org; ABibolov@imf.org; GUgazio@imf.org; TZhang3@imf.org |
| ISBN | 979-8-40-020049-6 |
| JEL Classification Numbers: | G21, G28, G32, G33 |
| Keywords: | COVID-19, banking performance, frms performance, sovereign-banks-economy nexus, bank asset quality |
| Author’s E-Mail Address: | AAlhassan@imf.org; IBenmohamed@imf.org; ABibolov@imf.org; GUgazio@imf.org; TZhang3@imf.org |
The Departmental Paper Series presents research by IMF staff on issues of broad regional or crosscountry interest. The views expressed in this paper are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Contents
1. Introduction
2. Balance Sheet Interlinkages and Vulnerabilities Buildup
A. Sectoral Interconnectedness
B. Sovereign-Bank-Real Economy Nexus
3. Risk and Vulnerability Assessment of Banks
A. Credit Cycle Analysis
B. Impact of COVID-19 on the Banking Sector
C. Bank Assets Quality and Macroeconomic Environment
4. Policy Priorities
Annex 1. Source Data for Balance Sheet Analysis and Credit Cycle Analysis
Annex 2. Balance Sheet Exposures, end-2020
Annex 3. Determinants of Banks’ Holding of Government Securities: Econometric Analysis
Annex 4. Monetary and Financial Measures to Mitigate Pandemic Efect
References
FIGURES
Figure 1. Commercial Bank Assets
Figure 2. Gross Cross-sectoral Balance Sheet Exposures in GCC Countries
Figure 3. Balance Sheet Linkages
Figure 4. Exposure in Foreign Exchange
Figure 5. A Stylized Illustration of the Sovereign-Bank-Real Economy Nexus
Figure 6. Sovereign Exposure Channel
Figure 7. GCC Government Debt
Figure 8. Banks’ Holding of Government Securities
Figure 9. Ratio of Banks’ Holding of Government Securities to Credit to the Private Sector
Figure 10. Banks’ Holding of Government Securities around Periods of Sharp Decline in Oil Prices
Figure 11. Corporate Sector Performance
Figure 12. Foreign Funding Exposure of GCC Banks
Figure 13. Financial Cycle in GCC Countries
Figure 14. Credit and Non-Oil Growth
Figure 15. Selected Financial Soundness Indicators
Figure 16. Net Income and Provisions
Figure 17. GCC Policy Rates and Federal Fund Rate
Figure 18. Monetary and Financial COVID-19 Policy Measures
Figure 19. Sectoral Distribution of Bank Credit to Private Sector
TABLES
Table 1. Balance Sheet Exposures, 2020
Table 2. Provisions as a Percent of Nonperforming Loans
Table 3. Monetary and Financial Policy Measures in Response to the COVID-19
Table 4. Determinants of Bank NPL Ratios
Table 5. Monetary and Financial Policy Road Map