Gulf banks resilient to global market crisis: S&P

The Gulf banking sector will remain resilient to global financial turmoil, according to a report published on Wednesday by Standard & Poor’s Rating Services.

S&P credit analyst Mohamed Damak said the current challenges in international markets will not dampen the performance of the banking sector in the GCC.

“Gulf banks are benefiting from the rosy environment in their home markets and carry limited exposure to US subprime and structured investment products. As a result, business volumes are expanding, provisioning needs are minimal, and capital and commitment are forthcoming from deep-pocketed shareholders,” said Damak.

Standard & Poor’s did not discount the existence of risk factors in the region as “Gulf banks carry a high amount of young loans on their balance sheets that have been untested by economic dislocations, including fast-growing exposures to the real estate sector.”

Gulf banks have also been active in merging and acquiring assets outside the region. While this strategy help banks diversify geographically, it could prove costly if risks are not managed properly, the report noted.

"We aren't ruling out more positive rating actions — as long as the region's economic environment remains buoyant. In addition, we believe more banks will seek ratings to gain greater access to capital markets in their hunger for long-term funding," said Damak.

Standard & Poor's has revised its outlooks on two banks to positive from stable, reflecting their improving financial performances and increased capitalization over the past six months.