Mubasher: Capitalisation has continued to be one of the positive rating factors for banks across the GCC, a new report by Standard & Poor’s (S&P) Global Ratings said.
“After completing our latest tally of their risk-adjusted capital (RAC) ratios, based on their year-end 2016 financial disclosures and our own parameters as of 16 October 2017, we calculate an unweighted average ratio of 11.5% for the Gulf banks,” the report released Sunday indicated.
Looking ahead, S&P Global Ratings forecast that GCC banks’ RAC ratios will “remain relatively stable” in the next 12 to 24 months.
"This result underpins our strong or very strong assessments of capital and earnings for 72% of the Gulf banks we rate," said S&P Global Ratings credit analyst Mohamed Damak in the report titled “Capitalization At Gulf Banks Is One Of The Main Strengths Supporting Their Ratings".
“[Gulf Banks’] quality of capital remains strong, even though we have observed higher recourse to hybrid instruments over the past few years," Damak highlighted.
By the end of 2016, eligible hybrid instruments represented on average 9% of the GCC banks' total adjusted capital (TAC), which is S&P Global Ratings’ base measure for capital.
Credit risk along with corporate exposure dominates the ratings agency’s calculation of these banks’ risk-weighted assets, according to the report, which added that S&P’s “adjusted RAC ratio highlights single-name and geographic concentration as additional risk factors.”
S&P Global Ratings further stated that it has reflected these points in its risk position assessment.
"It is important to mention that the 11.5% average RAC ratio as of year-end 2016 masks significant disparities among rated banks, ranging from 5.3% to 17.0%," S&P Global Ratings’ analyst highlighted.
UAE, Saudi, and Qatar-based banks “enjoy the highest capitalisation,” whereas those with the weakest capitalsation, but still adequate, are Bahraini banks, along with some Kuwaiti banks, whose capitalisation is weighed down by their exposure to riskier countries such as Turkey.
“Compared with local regulatory requirements, our RAC ratios are lower primarily because we apply more conservative risk weights on most asset classes, including sovereign exposures," Damak said, indicating that the average Tier 1 capital ratio for rated banks according to local regulatory measures reached 16.3% at by the end of 2016.
