Gulf banks will continue to perform strongly: S&P

March 27th, 2008 - 11:30 am ICT by admin  

Dubai, March 27 (IANS) Banks in the Gulf countries will continue to perform strongly amid the current market turmoil, according to report of ratings agency Standard & Poor’s (S&P). “Gulf banks are benefiting from the rosy environment in their home markets and carry limited exposure to US sub-prime and structured investment products,” S&P credit analyst Mohamed Damak said in a statement here.

“As a result, business volumes are expanding, provisioning needs are minimal, and capital and commitment are forthcoming from deep-pocketed shareholders.”

The report, titled “Gulf Banks Are Robust, And Appear Resilient To Today’s Global Market Dislocations”, however, stated that risks do exist.

It said the region’s banks carry a large number of young loans on their balance sheets that have been untested by economic dislocations, including fast-growing exposures to the real estate sector.

In addition, banks’ appetite for M&A outside their own turf is growing. Although this strategy is helping banks diversify geographically, it could prove costly if the associated execution and integration risks are not controlled or if above-average credit risks in these countries materialize, the report said.

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

“We aren’t ruling out more positive rating actions - as long as the region’s economic environment remains buoyant,” Damak said.

“In addition, we believe that more banks will seek ratings to gain greater access to capital markets in their hunger for long-term funding. They are trying to feed huge demand for loans, including real estate-related loans, which are resulting in widening maturity mismatches on their balance sheets.”

Damak said that although long-term debt issuance has slowed dramatically in the Gulf as a result of the deterioration in global market conditions, S&P expects it to resume rapidly once the credit markets return to normal.

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