While the six Gulf Cooperation Council (GCC) governments slowly move toward opening up their banking sectors to foreign competition, Gulf banks are starting to rise to the challenges of modernization and financial globalization, asserts a Standard & Poor's report released today.
Small by international standards, banks in the Gulf region generally display solid financial performance, capitalization and liquidity. Constrained by their underdeveloped operating environment, they face much the same challenges, concludes the international rating agency.
"Most Gulf banks' franchises are limited by the size of their home markets, with the notable exception of Saudi Arabia. However, banks in the region have found in the booming consumer-lending segment a major source for organic growth," said Standard & Poor's credit analyst Anouar Hassoune.
Such a rapid move toward credit to individual borrowers could have a negative impact on the asset quality of Gulf banks in the medium to long term, but GCC central banks are sensitive to the issue of expanding retail loans, and have consequently strengthened regulation in this area of lending, S&P analysts maintain.
"Government support for banks is strong, reflecting the dominant role of the government in Gulf economies and its interventionist policy," added Standard & Poor's credit analyst Emmanuel Volland. "Support has gone beyond liquidity facilities that central banks would typically be expected to offer in their role as lender of last resort."
The GCC countries—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE)—are far from constituting a single integrated economic and financial zone. Although the idea of a regional customs union, and even a single currency, has emerged, the current situation will prevail at least in the medium term, according to S&P’s report.
Cross-border regional activity of banks in the GCC countries remains limited, and the banks for the most part remain small domestic players. Legal barriers limiting foreign capital investments, together with public or family ownership, have slowed the emergence of an integrated regional banking market. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
