RIYADH: Global credit rating agency Moody’s stated that banks in the Gulf Cooperation Council region are closely linked to their respective sovereigns and are not exposed to the risks of the recently failed US banks.

The broad franchises of GCC banks and the large government presence on banks’ balance sheets support their resilience, according to a recent report by Moody’s Investors Service.

The rating agency noted that banks in the GCC region often have significant franchises in retail and corporate banking. Governments in the region are primarily represented across banks’ balance sheets as major shareholders, borrowers and depositors, promoting a collaborative and interconnected business environment.

The report added that the region continues to own direct and indirect shares in the banking system through public sector institutions, pension funds and companies.

It supports bank financing features through continuous deposit flows, which expanded due to the rise in oil revenues in 2022.

In addition, governments also provide lending opportunities to GCC banks, which play an important role in implementing the economic diversification agendas of governments in the non-oil sectors of the economy – where most of their lending activities take place – and which are supported by government spending, particularly in Saudi Arabia. .

“All of these factors ensure that GCC banks remain the core of the region’s economies and will protect them from sudden market shocks,” Moody’s said in a statement.

As of December 2022, low-cost, reliable customer deposits across the GCC banking systems cover the majority of non-equity liabilities held by Gulf banks, and account for nearly three-quarters of total liabilities.

On the Islamic finance front, Islamic finance is rapidly expanding across banking institutions in the GCC countries because deposits in these banks are less expensive than conventional banks and help the banks’ profitability, especially in times of high interest rates.

As of the end of 2022, Saudi Arabia has the largest Islamic banking franchise, with near-zero deposits accounting for 55 percent of total deposits (Islamic and conventional), according to the rating agency’s report.

Moody’s also highlighted how Gulf banks have sufficient liquidity buffers and low reliance on confidence-sensitive market financing.

“We expect banks’ recourse to more volatile market financing to remain stable, averaging around 20 percent of tangible bank assets, with the exception of Saudi Arabia where banks are likely to seek additional market financing given the significant demand for credit,” Moody’s said. .

They also added that Saudi banks tend to hold long-term bonds, a large portion of their held-to-maturity books that include variable-rate securities.

Source link

Leave a Reply

Your email address will not be published.