The UAE and other GCC banks can manage the contagion risk from the collapse of the US-based Silicon Valley Bank (SVB), Signature Bank, and troubles at Credit Suisse, according to global ratings agency S&P.
Analysts and economists say that local banks and firms have limited or no exposure and the regional lenders also enjoy the strong support of the governments, which is key for the financial sector and regional economies.
S&P revealed that five of the 19 banks it rates in the region have only more than five percent of their assets in the US, while four had more than five percent of liabilities to counterparties in the US.
“Generally, GCC banks would have limited lending activity in the US and most of their assets there would be in high-credit quality instruments or with the US Federal Reserve Bank,” S&P said, adding that “GCC banks’ US portfolios have contributed to unrealized losses, but the overall amount appears manageable.”
Read more: GCC banks’ profits returning to pre-pandemic levels: S&P
SVB earlier this month became the biggest American bank to fail since the 2008 financial crisis. State regulators closed New York-based Signature Bank also, becoming the third-largest failure in US banking history.
The Swiss bank Credit Suisse also received a $54-billion lifeline from the government to shore up investor confidence as the collapse of the US banks caused worry among investors about the resilience of the financial system.
Mohamed Damak
In light of the banks’ good funding and liquidity profiles and expected government support in case of need, Mohamed Damak, primary credit analyst at S&P, said the chance of GCC banks having to sell meaningful volumes of investment securities appears limited. “Nevertheless, if they did, and all unrealized losses crystallized, the impact would be on profitability rather than on capitalization for the majority of rated banks,” he said.
Damak added that GCC banks would need to use only about 24.9 percent of their 2022 net income, on average, to absorb the estimated revaluation losses.
He stressed that the UAE, Qatar, Kuwait, and Saudi Arabia as highly supportive of their respective banking systems. “Consequently, we expect extraordinary support to be forthcoming to these banking systems in case of need. These countries have a strong track record of supporting their banking systems in times of stress,” he added.
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