War in Iraq: GCC bank contingency planning provides cushion
Ahead of the outbreak of war in Iraq, the major banks in the Gulf Cooperation Council (GCC) countries took contingency measures to provide them with an additional cushion, according to a survey by Standard & Poor's Ratings Services.
The survey covered banks in Bahrain (A-/Stable/A-2), Kuwait (A+/Stable/A-1+), Oman (BBB/Stable/A-3), Qatar (A-/Positive/A-1), Saudi Arabia (not rated), and the United Arab Emirates (not rated).
"While Gulf banks' contingency plans differed substantially, they all tended to lay particular stress on funding and liquidity, Information Technology (IT) systems and key operations, and staff security," explained Anouar Hassoune, Standard & Poor's credit analyst and one of the authors of the report.
The survey and analysis was published in March, following the publication by Standard & Poor's in February, of a report on the consequences on sovereign ratings of a war in Iraq. In the sovereign report, Standard & Poor's opinion was that, should war break out, all the rated sovereigns in the Middle East would come under scrutiny.
That said, given the intrinsic merits of the GCC states, they seem less vulnerable to downside political and economic risks than other Middle Eastern rated sovereigns. "In such a context, the cushion from the contingency planning comes in addition to the banks' generally solid capitalization and liquidity," said Standard & Poor's credit analyst Emmanuel Volland, a co-author of the report.
"Most GCC banks enjoy good access to customer deposits and tend to be net placers of funds in international markets. Consequently, the ratings on the Gulf banks would not likely come under critical downward pressure in the event of a conflict, provided that the conflict was short."
Providing additional comfort is the implicit or explicit commitment of regional central banks to support their respective banking systems, if need be. Finally, banks in the Gulf usually have physical presence abroad, providing them with the ability to rapidly transfer critical operational processes away from any war scene. — (menareport.com)
© 2003 Mena Report (www.menareport.com)