Saudi and Qatari banking sectors ‘most resilient’

MANAMA: Saudi Arabia and Qatar banking sectors are the most resilient within the GCC, according to Standard & Poor’s Ratings Services.

“The credit profile of Gulf banks will likely deteriorate this year, notably because of the tougher operating environment, lower business volumes, tighter liquidity, and the region’s stock market slump since the end of third-quarter 2008,” said Standard & Poor’s Ratings Services in a report published yesterday.

“We believe that as a result, asset quality and profitability of the banks that we rate are likely to suffer,” said Standard & Poor’s credit analyst Mohamed Damak, lead author of the report titled “Tougher Environment Weakens Financial Profile Of Gulf Banks And Pressures Their Credit Ratings.”

“Indeed, we believe that 2009 will prove to be a difficult year for most Gulf Cooperation Council (GCC) banks,” he added.

“On a positive note, thanks to their good financial profile, Gulf banks have entered this tougher environment from a position of relative strength,” said Damak.

“In addition, we believe that GCC countries, which we classify as interventionist toward their banking sectors, have and will likely provide some extraordinary support to the systemically important banks if needed. The capacity of these countries to do so remains high in our opinion.

“Economic conditions in the GCC rapidly deteriorated shortly after oil prices dropped from their peak in July 2008. At the same time, liquidity shrank because of rapid loan growth and the repatriation of foreign funds.

“We believe that the most resilient banking sectors are Saudi Arabia’s and Qatar’s. The banking sectors in the United Arab Emirates — especially in the emirate of Dubai — and Kuwait are under the most pressure. This explains the several negative rating actions we recently took on Dubai and Kuwaiti banks,” said Damak.

“To date, the ratings on about one-third of the GCC banks have a negative outlook or are on CreditWatch with negative implications. This suggests that additional negative rating actions could occur in 2009.”