Gulf banks facing tough 2009 - S&P

The credit profile of Gulf banks will likely deteriorate this year amid tighter liquidity and slumping stock markets, Standard & Poor's (S&P) said on Wednesday.

“We believe that the most resilient banking sectors are Saudi Arabia's and Qatar's. The banking sectors in the UAE – especially in the emirate of Dubai – and Kuwait are under the most pressure,” said credit analyst Mohamed Damak.

S&P has recently taken several negative rating actions on Dubai based and Kuwaiti banks, and the ratings of around one third of GCC banks currently have a negative outlook or are on CreditWatch with negative implications.

“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.

The ratings agency believes the most resilient banking sectors will be those of Saudi Arabia and Qatar.

GCC countries have and will likely provide extraordinary support to the “systemically important” banks if needed, and their capacity to do so remains high, it added.

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 and stock markets plummeted.

S&P estimates that real GDP in the GCC will slow by more than 50 percent in 2009 from around 9.1 percent last year.

The number of non performing loans to individuals and the real estate sector will vary among the six GCC countries, it said.

Separately, Global Investment House said on Tuesday that it expects the UAE banking sector to witness negative earnings growth and a sharp contraction in loan growth this year.

A severe liquidity crunch, plummeting equity markets, eroding property valuations and low oil prices, coupled with production cuts, will “brutally undermine” asset growth, the Kuwaiti investment bank said.

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