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Rated Gulf banks can absorb up to $36 billion shock before moving into red – S&P

DUBAI: Rated banks within the Gulf can take in as much as a $36 billion shock earlier than depleting their capital bases, S&P World Rankings mentioned on Sunday, including that banks in Bahrain, Oman and the United Arab Emirates are probably the most susceptible to will increase in price of threat.

The rankings company mentioned the comparatively robust earnings of the area’s rated banks and loan-loss provisions will assist them climate the double shock of the coronavirus pandemic and the collapse of oil costs.

The $36 billion shock that S&P estimates banks can take in is about thrice the company’s calculated normalised losses, “which suggests a considerable degree of stress,” it mentioned.

S&P mentioned it anticipated banks’ profitability to endure in 2020 as a result of pandemic and low oil costs.

“It’s because financing development will stay restricted, with banks focusing extra on preserving their asset-quality indicators than producing new enterprise,” it mentioned, including it anticipated asset high quality will deteriorate and price of threat would rise.

S&P assumed COVID-19, the illness attributable to the brand new coronavirus, shall be contained and non-oil exercise will resume by the third quarter. If not, banks’ profitability will endure additional and a few will see losses, it mentioned.

“In our view, the assist measures enacted by GCC governments will at greatest delay this drawback, within the absence of further measures,” it mentioned, although it added banks’ low price base and potential new cost-saving measures subsequent yr may benefit them.

Whereas some banks have taken measures to protect their workforces, job cuts “will most likely come subsequent yr if the atmosphere would not enhance,” S&P mentioned.

S&P mentioned Saudi banks are probably the most resilient, whereas Kuwait has the very best capability to resist increased price of threat and Bahrain, Oman and UAE are probably the most susceptible to such prices.

It added that the $36 billion determine isn’t evenly distributed. A couple of banks have extra capability to soak up losses than others, which isn’t correlated with the lender’s dimension.

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