By Andy Sambidge
New US study says GCC gov'ts in good position to prevent any collapse of financial institutions.
Gulf-based banks have so far escaped the impact of the global financial crisis and are unlikely to suffer from any collapse due to strong government support, a new report says.
The Washington-based Institute of International Finance (IIF) said in a study that despite the plunge in oil prices, the six GCC states have enormous budget and current account surpluses which leave them in a position to intervene and prevent the collapse of key regional banks.
"There are no signs, so far, that the sharp fall in equity prices in the Gulf has affected the soundness of financial institutions, owing to high solvency ratios. We believe the respective authorities in the GCC states will not let any major local bank collapse," the study reads in a report in Emirates Business on Tuesday.
The report added that indications from the GCC banks and other financial institutions showed they are in a generally strong position.
"Data through June 2008 showed high levels of profitability, low non-performing loans, and high capitalisation levels," it said.
The IIF said strong oil prices through 2008 have sharply boosted the GCC's income and widened their current account surplus to a projected 27 per cent from around 19 per cent of the gross domestic product in 2007.
The report also noted that the rapid accumulation of foreign assets, particularly by the UAE, Saudi Arabia, Kuwait and Qatar, provided an alternative revenue source and could mitigate the impact of a sharp fall in oil revenues if the price continues to drop.
The figures showed the aggregated domestic debt has declined steadily from about 80 per cent of the GDP in the late 1990s to an estimated 13 per cent in 2008.
It gave no breakdown but official figures showed the bulk of the debt decline was in Saudi Arabia.
The report estimated the GCC's combined foreign assets, including those of governments, banks and other financial institutions, at nearly $1.5 trn at the end of June, almost 130 per cent of their GDP.