GCC: tight financial conditions for businesses feed alternative sources of financing
Despite improving economic performances across the Gulf Cooperation Council (GCC), monetary and financial conditions remain tighter than they were before 2015. Access to financing remains one of the key issues for companies, particularly for small- and medium-sized enterprises (SMEs). Loan growth in the region has recovered somewhat thanks to higher oil prices, but it remains below its historical average. The US Federal Reserve’s (Fed) policy normalisation is another cause: since the Fed announced its policy normalisation in 2013, central banks across the GCC have increased their policy rates in line with the Fed’s exit strategy. These tight bank credit conditions have forced companies to look for alternative financing sources in recent years, e.g. bond and sukuk issuances, trade finance, and initial public offerings. But despite their fast growth, these different sources of financing account for no more than around 5% of usual bank credit. GCC companies are now looking forward to the expected expansionary monetary policy in the United States, which should help them.
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