Moody's sees no pressure on Gulf ratings

NO PRESSURE: Gulf Arab states are well-positioned to withstand the effects of the credit crisis. (Getty Images)

Gulf Arab states are among the best positioned in the world to withstand the effects of the credit crisis and there is no pressure on their sovereign credit ratings, Moody's senior analyst for the region said on Sunday.

"Currently, there is no downward pressure on any sovereign ratings in the Gulf," Tristan Cooper told Reuters.

"These economies are still performing strongly, with wide twin surpluses and large cushions of foreign financial assets.

"Out of any in the world, these countries have to be considered among the best placed to deal with the global financial turmoil, at least from a macro perspective."

Gulf governments have posted huge current account surpluses in recent years on the back of a five-fold increase in the price of oil since 2002.

Much has been invested in infrastructure and development, with some warehoused in large sovereign wealth funds like the Abu Dhabi Investment Authority (ADIA).

But tensions in the banking sector in the United Arab Emirates have intensified in recent weeks as investors withdraw deposits initially made in hopes that Gulf states would be forced to revalue their currencies against the US dollar to fight inflation.

Those hopes were dampened in April when the UAE said it would keep its dirham pegged to the dollar at the same rate.

Investors have reacted by withdrawing their deposits, prompting the UAE central bank to launch last week a 50 billion dirham ($13.6 billion) emergency facility to address tension in the money markets.

"Clearly there have been liquidity effects on the banking sector in some Gulf countries as sentiment has turned and currency speculators have withdrawn deposits," Cooper said.

"Financing is going to become, or already has become, more difficult and more expensive."

But Gulf banks have mostly avoided exposure to the types of assets that turned toxic during the credit crisis in the United States, he said.

Tighter credit conditions could, in fact, be beneficial to the Gulf, which has been dogged by record inflation due to soaring import costs and bottlenecks in supplies for the region's construction boom.

"You're going to see a slowdown in credit growth, but from high levels. It might be beneficial to have a slowdown, given high inflationary pressures," he said.

Moody's foreign currency government bond ratings are A1 for Saudi Arabia and Aa2 for the UAE. (Reuters)

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READERS' COMMENTS

If Moody's rate them I suggest you sell
Posted by scc on Sunday 28 September 2008 at 17:58 UAE time


These very same groups caused havoc in the global financial markets with their cavalier attitude to risk in the toxic SIV area when they colluded in hiding worthless debt behind meaningless investment grade ratings.
These same groups yet again accelerated the downfall of AIG only a few days ago by downgrading the group's credit rating and pre empting a capital adequacy call that led to a downward spiral in the insurer's shares resulting in effective bankruptcy.
As if one needs any further evidence of madness from this group, they duly obliged in the summer with a piece of colossal hubris entitled "SIVs: An Oasis of Calm in the Sub-prime Maelstrom"
On any objective analysis of the performance to date of Moody's and other agencies, one would have to treat these forecasts with extreme caution and expect imminent disaster in the UAE banking sector!

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