Oil price decline could put pressure on oil exporting nations

The significant drop in oil prices could lead to higher credit losses and lower liquidity for some banking systems in oil-producing countries, according to a report.
"This drop will not significantly affect the performance of oil-exporting countries banking systems, but the ones with low fiscal buffers, significant economic imbalances, and high dependence on oil-related bank deposits may come under pressure," said Standard & Poor's credit analyst Mohamed Damak.
According to S&P, banks in Bahrain and Oman are vulnerable indirectly through the potential drop in investments and economic growth, and Nigeria is vulnerable directly through its banking system's significant overall exposure to the oil sector, the report said.

Brunei is exposed to both channels, owing to the significant contribution of the oil and gas sectors to its economy and its high direct exposure through contractors, suppliers, and oil and gas companies employees and civil servants.
"We now expect Brent's price to stabilize around USD 55/bbl in 2015 and increase slightly to around USD 65/bbl in 2016," he said.
In light of this decline, the report looks at the banking systems in 10 oil-exporting countries - the six Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the UAE), plus Brunei, Kazakhstan, Malaysia, and Nigeria.
Oil's price decline could affect these countries banking systems either directly through banks exposure to and deposits from oil- or government-related companies or indirectly through lower investments and economic growth, which may weigh on banks' asset quality and profitability indicators.