Dark Clouds
By Trends • Jan 15th, 2012The euro zone crisis is getting complex, while the collective political will to solve the problem is mired in individualistic interests. Where do GCC banks stand?
It’s a tale of different cities when it comes to the banking sector of the GCC. The world may see the region in unison either positively or negatively depending upon the situation, but the six countries that comprise the Gulf Cooperation Council are very different. From the banking sector’s perspective, the health of banks is in fairly good shape in Saudi Arabia, Kuwait, Qatar and Oman, while in the UAE and Bahrain the struggles are manifold, with an exception of banks in Abu Dhabi.
The crisis in the euro zone is not at all good news for the banks and corporations that are dealing with the European financial institutions. Summing up the sector’s health in 2011, Timucin Engin, associate director of Central and Eastern Europe, Middle East and Africa at Standard & Poor’s said: “Looking at the six countries in the GCC region, we view the banking system in the Kingdom of Saudi Arabia as the strongest in the GCC region.”
The banks are operating with healthy liquidity ratios and are funding themselves largely through customer deposits, he said, adding: “In our view, Saudi banks have been more conservative than their peers in growing their lending books in the past few years and we perceive their underwriting practices as generally stronger.
“Thanks to these two factors, despite the since 2008, Saudi banks have been operating with stronger asset quality metrics than their peers in the GCC. Looking at 2012, we believe these banks will continue to operate with strong profitability levels and will display a healthy balance sheet growth.
“In Kuwait, since 2008, in line with the significant price correction we have witnessed globally and regionally, certain Kuwaiti investment companies began to experience difficulties. Some of the entities were operating with high leverage levels, the sector had large exposures to the real estate and capital markets and the funding structures in certain entities were fragile in our view,” said S&P’s associate director.
“Kuwaiti banks had large credit exposures to these entities and, as a result, the banking system witnessed a fast paced deterioration in its asset quality. In the last 24 months, we have seen major Kuwaiti banks increasing their capital levels and carefully managing their existing expo-
