Moody's puts 12 GCC banks on review for possible downgrade

Investor service assessing the "evolving risk profile" of the banks' subordinated debt

Moody's Investor Services

Moody's Investor Services

Moody's Investors Service put the subordinated debt of 12 Gulf banks on review for possible downgrade.

The affected banks are Arab National Bank, Banque Saudi Fransi, Abu Dhabi Commercial Bank, Emirates NBD PJSC, First Gulf Bank, Mashreqbank PSC, Commercial Bank of Qatar, Doha Bank, Qatar Nationl Bank, Burgan Bank, Bank Muscat and BBK B.S.C.

Moody's said it was putting the banks on review "to assess the evolving risk profile of these subordinated debt instruments given the recent global and prudential trends towards imposing losses on junior creditors in the context of government support, and the implementation of Basel III, which will require Tier 2 instruments to have 'loss absorption' features."

About US$4bn of securities are affected, the rating agency said. All other ratings and outlooks for these issuers remain unaffected, the rating agency said.

Moody's added that it continues "to view government support for banks across GCC countries as high," and that the decision to initiate a review for possible downgrade is "driven by the growing risk of 'bail-ins' for subordinated debt instruments."

Basel III requires that Tier 2 debt has loss-absorbing features that can be applied upon the provision of government support.

"Despite the absence of loss absorption features in outstanding instruments, Moody's has observed regulators in other jurisdictions using their statutory powers to share losses with existing subordinated debt holders," the agency said. "These recent developments increase the risk of burden-sharing among creditors for subordinated debt outside of insolvency proceedings when receiving government support."

The rating review will "focus on the risk that local regulators and support providers may impose burden-sharing losses on holders of subordinated debt," Moody's said, adding, the outcome of the review will determine whether the agency "will continue to fully incorporate government support into its assumptions for subordinated debt ratings."

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