GCC banks can manage contagion risk from SVB, Signature Bank and Credit Suisse

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. 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. According to global ratings agency S&P, five of the 19 banks it rates in the region have only more than five per cent of their assets in the US, while four had more than five per cent 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 unrealised losses, but the overall amount appears manageable.” 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. 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 unrealised losses crystallised, the impact would be on profitability rather than on capitalisation for the majority of rated banks,” he said. Damak added that GCC banks would need to use only about 24.9 per cent 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. James Swanston, an economist at Capital Economics for the Middle East and North Africa, said exposure to the SVB crisis appears to be limited in the Mena region. Vijay Valecha, Chief Investment Officer, Century Financial, said the Middle East is not significantly impacted by any signs of troubles brewing in the banking industry outside the region. “The overall Saudi economy is extremely resilient as it shrugged off the slowdown brought on by the pandemic and rebounded 8.7 per cent last year. The banking sector in particular is thriving on account of the Kingdom’s Vision 2030 initiative. Furthermore, the broader economic boom in the GCC region has strengthened the economic and financial health of the region. GCC banks enjoy strong fundamentals with increasing profitability, improving asset credit quality ratios, and strengthening capital positioning. The market capitalisation of these banks has held firm despite global macroeconomic headwinds,” added Valecha. The Century Financial CIO said the dynamic in the GCC banking sector is solid because the pandemic compelled banks to introspect their cost curve and make significant improvements. Copyright © 2022 Khaleej Times. All Rights Reserved. Provided by SyndiGate Media Inc. (Syndigate.info).

GCC banks can manage contagion risk from SVB, Signature Bank and Credit Suisse

DISCOVER MORE

Mohamed bin Zayed, Mohammed bin Rashid attends launch of ‘National Genome Strategy’

Dubai Airports recognised as one of Best Employer Brands in LinkedIn MENA Talent Awards

Jobs in UAE during Ramadan: Hiring picks up for these roles during the holy month

UAE’s MoE imposes fines worth $6.15mln on 29 DNFBP firms

UAE banking sector to remain stable in 2023 – KPMG

Belarus pledges support to Saudi Expo 2030 bid

Large capital pools, FDI drive UAE banking sector growth

Real GDP growth projected to expand by 4.3% in 2024: UAE Central Bank

Egypt's central bank likely to hike interest rates by 3% - HSBC

Saudi National Bank's chairman resigns; Al Ghamdi takes over

BP and UAE's ADNOC bid for stake in NewMed Energy

UAE exchange firm Al Ansari raises $210mln in IPO

UAE banking sector to remain stable in 2023 – KPMG

Global economic growth to slump to three-decade low, World Bank warns

Brazil's monetary policy director leaves office amid government uncertainty over replacement

EU banking regulator warns sector still at risk - Handelsblatt

Dubai Chamber of Digital Economy appoints Saeed Al Gergawi as Vice President

UAE ready to fast-track digital economy growth: BCG

LATEST VIDEO

VIDEO: Why is China's Belt and Road Initiative facing setbacks?

ZAWYA COVERAGE

Saudi Industrial Investment Group to acquire stake in Danish firm Unibio for $70mln

VIDEO: Why is China's Belt and Road Initiative facing setbacks?

Global energy transition needs $35trln investment by 2030 – IRENA

Saudi’s fintech sector starts to rival UAE, Egypt as number of firms nearly doubles

UAE, Costa Rica launch preliminary CEPA negotiations

IMF wants external financing commitments fulfilled to release funds, Pakistan PM says

Indian rupee gains as risk assets edge up, seasonal factors help

Lead of Finland's right-wing opposition narrows as parliament election looms

Bad weather forces electricity shutdowns in eight Ukrainian regions

THE BRI REPORT

China is reshaping the Belt and Road Initiative ahead of a post-pandemic era

DISCOVER MORE

LATEST VIDEO

ZAWYA NEWSLETTERS

ZAWYA COVERAGE