Moody’s assigns ‘counterparty risk’ ratings to GCC banks

Rating assesses banks’ ability to honour non-debt financial obligations

Rating agency Moody's issued counterparty risk ratings to 11 banks in Saudi Arabia, and 46 banks elsewhere in the GCC, assessing their ability to honour non-debt financial obligations. Waseem Obaidi for The National
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Rating agency Moody’s assigned counterparty risk ratings (CRR) to a string of banks in the Arabian Gulf, measuring their ability to honour uncollateralised non-debt financial obligations, it said in two separate reports this week.

First Moody’s upgraded the CRR ratings of 11 banks in Saudi Arabia, assigning them ratings of P-1, A1 and A2 – representing upgrades of one to three notches above their previous ratings.

The banks upgraded were Al Rajhi Bank; Alawwal Bank; Arab National Bank; Bank Al-Jazira; Bank AlBilad; Banque Saudi Fransi; National Commercial Bank; Riyad Bank; Samba Financial Group; Saudi British Bank, and the Saudi Investment Bank.

In a separate ratings report, Moody’s assigned CRR ratings including B1, Ba1, Baa2, Baa3, Ba3, A1, A2 and P1, P2 and P3 to 46 banks and their branches in the five other GCC countries of the UAE, Kuwait, Oman, Bahrain and Qatar.

The banks included BBK, Al Ahli Bank of Kuwait, Kuwait Finance House, Bank Dhofar, National Bank of Oman, Abu Dhabi Commercial Bank, First Abu Dhabi Bank, Dubai Islamic Bank and HSBC Middle East, among others.


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For many of the banks assessed, Moody’s believes “CRR liabilities have a lower probability of default than the bank’s deposits debt as they will more likely be preserved in order to minimise banking system contagion, minimise losses and avoid disruption of critical functions,” it said.

A bank’s rating may be upgraded if there is a strengthening in its operating environment or financial fundamentals, or if Moody’s revises upwards its assessment of local authorities’ or the government’s willingness to provide support – captured by an upgrade in sovereign ratings.

But the ratings could be downgraded if there is a weakening in a bank’s operating environment or financial fundamentals, or Moody’s downgraded its sovereign rating for the bank’s home country or assessment of the government’s capacity to provide support, the agency said.

Moody's said in a report in March that Saudi Arabian banks would outperform their peers in 2018, as the economy improves on greater government spending and higher interest rates, boosting margins.

However, banks in general across the GCC are likely to see improved financial performance this year, due to an uptick in the regional economy, analysts have said.

In March, Abdulaziz Al Ghurair, the head of the UAE Banks Federation, said he expects higher loan growth and profitability for banks in 2018 as the economy turns the corner and lenders reduce the amount of non-performing loans that piled up during the SME debt crisis in the wake of the 2014 oil crash.

Mr Al Ghurair forecast loan growth of 5 per cent to 6 per cent on aggregate for banks in the UAE this year compared to 4 per cent last year. At the same time, the profitability of banks is likely to exceed the 8 per cent growth seen in 2017 compared with 2016.

“Despite everything that’s happening around us, we are seeing growth,” he said.