New look at non-credit risk factors shows that GCC banks are outperforming their peers in many parts of the Africa, Latin America and Europe
Contrary to popular belief in some parts of the world, financial institutions in the Middle East – particularly in the Arabian Gulf region – are actually more transparent than in many countries, according to Stuart Jones, the founder and CEO of Sigma Ratings, an MIT-backed non-credit ratings agency.
In an interview with Arabian Business, Jones – a former senior US Treasury official who served as its Abu Dhabi-based attaché the Middle East – said that he believes that the way risk is analysed is in need of an overhaul.
“The way that it happens now, and effectively has for 100 years, is that credit ratings agencies effectively are looking at the willingness or ability of a company to repay on financial terms,” he said. “Non-credit risk ratings were badly needed on factors like governance, compliance and financial crime risks.”
Jones added that “what we’re finding when we look at data and conduct risk events around the world is that those sorts of issues, around governance, controls and the people running a company are as important, or more important, than the financial ability of an entity to repay.”
“More and more people care about reputation, and more and more they care about who they are doing business with,” he added.
To examine perceptions of risk, Sigma Ratings surveyed banks about their perception of how risky they felt a certain country was for investment.
According to the findings, Middle Eastern countries were generally perceived as more risky than other regions.
“Because of some of the conflicts that have occurred, the region sometimes has people unnecessarily on edge,” Jones noted. “Not too many people voted for the Middle East [as being transparent].”
By examining money laundering, market and political risk factors as well as sanctions and corruption, however, Sigma found that Gulf countries in particularly routinely outperform many Latin American and European countries in transparency and compliance. For example, while only 5 percent of local Mexican banks had published Wolfsberg (an industry standard report on anti-money laundering practices), 40 percent of UAE banks had them.
“When you look at the data, at scale, [the region] outperforms,” Jones said. “Specifically the GCC countries seem to be over-performing in the region, and we see a lot of positive movement with regards to these countries.”
Among the most transparent banks in the region, according to Sigma, are Emirates Islamic Bank, Al Hilal Bank, the National Bank of RAK, Sharjah Islamic Bank, and the Arab Bank for Investment and Foreign Trade.For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.