The news that Saudi Arabia has returned to the bond market, with a plan to raise $27bn by the end of 2015, is a good indicator of the financial strains facing the Gulf Co-operation Council (GCC) countries. Between May and August this year, the price of Brent crude fell by 26%, as fears over a slowing global economy as well as increased Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC production weighed on market sentiment. For the ruling dynasties across the Arabian peninsula, this new price environment is bringing an end to years of oil money abundance.
It is also likely to bring new challenges to the region’s banking sector. “We expect to see a gradual change in terms of both loan growth and non-performing loans across the GCC region, though there won’t be any major shift in asset quality indicators over the short term,” says Mohamed Damak, director and global head of Islamic finance at Standard & Poor’s.
