The risk-adjusted capital ratio that S&P uses to measure the banks’ capital adequacy showed GCC banks about 5% higher (12.5%) than the 7.4% average figure projected for the 100 largest banks S&P has rated.
Two key factors are underlying the GCC banks’ strong capitalisation metrics, said Standard & Poor’s credit analyst Paul-Henri Pruvost.
"First, banks in all GCC countries, except Saudi Arabia, must maintain regulatory capital adequacy ratios above 10%. In addition, GCC banks tend to operate with substantial headroom ranging from 3% to 23% for the banks we rate," he said.
Provost added that while GCC banks tend to outdo their larger international peers in terms of capitalization, they have weaker risk positions. Their risk profiles include sizable single-name, sector, and geographic concentration in countries that have higher economic risk than more mature markets in Western Europe or North America.
“Still, these risks aren’t sufficient to threaten their capital positions, which we expect will remain broadly stable over the next two years. This is because we forecast subdued growth in risky assets, particularly corporate financing, combined with a gradual recovery in internal capital generation thanks to reduced impairment charges,” he said.
His expectations are that 21 of the 26 GCC banks rated by S&P have stable outlooks.
