Banks in the Arabian Gulf have remained “remarkably stable” in the face of regional geopolitical shocks over the past three decades and can withstand substantial external funding outflows without the need for support, S&P Global Ratings has said.
Geopolitical disruptions tend to trigger investors’ risk aversion, a rise in funding costs and the possibility of capital outflows from financial institutions in higher-risk markets, even when events are not directly related to them.
However, that has not been the case for the banking sector in the six-member GCC economic bloc, Mohamed Damak, senior director, and Benjamin Young, director of financial institution ratings at S&P, wrote in a joint report.
Private domestic deposits — their largest source of funding — have grown year on year over the past three decades, despite disruptive regional events.
Only during the First Gulf War was a drop recorded in private sector domestic deposits. However, related withdrawals were only temporary, they said.
“Large outward remittances have reduced the stock of potentially less stable deposits, and confidence boosting actions by public sector entities have helped reduce domestic funding volatility during shocks,” Mr Damak and Mr Young said.
“Meanwhile, corporate activity and consistent population growth have also underpinned deposit expansion and offset outflows,” they said, while the GCC's relative “safe-haven status” has also helped to attract stable funding from higher-risk geographies.
Banks in the Gulf have benefitted from the rapid expansion of GCC economies over the past three decades.
Sovereigns have redirected large parts of their oil and gas revenue into their economies. This has accelerated the creation of wealth in the region and boosted the growth of the retail and corporate sectors.
Regional governments have also invested heavily in infrastructure development, opened up new avenues of business for commercial banks.
Higher energy prices in recent years have further boosted their growth and profitability as policymakers focus on developing new-age economic sectors to sustain the pace of GDP expansion.
S&P said external funding in the GCC has traditionally been limited and “we generally expect domestic deposits to be more stable because they form the working capital and savings of residents”.
The stock of gross financial sector external liabilities grew substantially over the past few decades and now stands at slightly under $550 billion, the rating agency said.
On average, banks in the GCC comprise about a third of their economies' total external liabilities, with lenders in Oman and Saudi Arabian accounting for under 10 per cent of total liabilities.
Financial institutions in Qatar and Kuwait account for more than 40 per cent of their respective external liabilities.
Large outward remittances have reduced the stock of potentially less stable deposits, and confidence-boosting actions by public sector entities have helped reduce domestic funding volatility during shocks
S&P Global Ratings
Banking systems in the UAE, Kuwait and Saudi Arabian are in “modest net external asset positions” while lenders in Oman are small net debtors.
Those in Bahrain and the Qatar have a “more material net external debt position”, S&P said.
The bankable population in regional economies is also growing amid recent regulatory changes to boost economic growth.
Amendments in residency rules and companies’ laws allow medium to higher-income employees in the corporate sector to remain in the region for longer, which further supports the banking system.
The growth of multinationals and family owned businesses in the region has also significantly increased the amount of local working capital and treasury operations for banks.
From 2001 to 2016, corporate deposits grew faster than retail deposits in Qatar and the UAE. However, retail deposits in both markets have expanded more quickly since then, according to S&P.
Wealthy public sectors in GCC countries also “support bank deposit stability”, as income from the sale of oil and gas underpins deposit growth in the public sector.
The S&P stress test shows that Saudi and Kuwaiti banks have the highest coverage of external liabilities.
UAE banks also enjoy “a strong coverage ratio of about 92 per cent [as of September 30, 2021], which is underpinned by their net asset position”, the rating agency said.
COMPANY PROFILE
Name: Lamsa
Founder: Badr Ward
Launched: 2014
Employees: 60
Based: Abu Dhabi
Sector: EdTech
Funding to date: $15 million
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Timeline
1947
Ferrari’s road-car company is formed and its first badged car, the 125 S, rolls off the assembly line
1962
250 GTO is unveiled
1969
Fiat becomes a Ferrari shareholder, acquiring 50 per cent of the company
1972
The Fiorano circuit, Ferrari’s racetrack for development and testing, opens
1976
First automatic Ferrari, the 400 Automatic, is made
1987
F40 launched
1988
Enzo Ferrari dies; Fiat expands its stake in the company to 90 per cent
2002
The Enzo model is announced
2010
Ferrari World opens in Abu Dhabi
2011
First four-wheel drive Ferrari, the FF, is unveiled
2013
LaFerrari, the first Ferrari hybrid, arrives
2014
Fiat Chrysler announces the split of Ferrari from the parent company
2015
Ferrari launches on Wall Street
2017
812 Superfast unveiled; Ferrari celebrates its 70th anniversary
UAE currency: the story behind the money in your pockets
EA Sports FC 26
Publisher: EA Sports
Consoles: PC, PlayStation 4/5, Xbox Series X/S
Rating: 3/5
The specs: 2018 Kia Picanto
Price: From Dh39,500
Engine: 1.2L inline four-cylinder
Transmission: Four-speed auto
Power: 86hp @ 6,000rpm
Torque: 122Nm @ 4,000rpm
Fuel economy, combined: 6.0L / 100km
The years Ramadan fell in May
The White Lotus: Season three
Creator: Mike White
Starring: Walton Goggins, Jason Isaacs, Natasha Rothwell
Rating: 4.5/5
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Watch live
The National will broadcast live from the IMF on Friday October 13 at 7pm UAE time (3pm GMT) as our Editor-in-Chief Mina Al-Oraibi moderates a panel on how technology can help growth in MENA.
You can find out more here
UAE currency: the story behind the money in your pockets
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The Gandhi Murder
- 71 - Years since the death of MK Gandhi, also christened India's Father of the Nation
- 34 - Nationalities featured in the film The Gandhi Murder
- 7 - million dollars, the film's budget
Thank You for Banking with Us
Director: Laila Abbas
Starring: Yasmine Al Massri, Clara Khoury, Kamel El Basha, Ashraf Barhoum
Rating: 4/5
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Should late investors consider cryptocurrencies?
Wealth managers recommend late investors to have a balanced portfolio that typically includes traditional assets such as cash, government and corporate bonds, equities, commodities and commercial property.
They do not usually recommend investing in Bitcoin or other cryptocurrencies due to the risk and volatility associated with them.
“It has produced eye-watering returns for some, whereas others have lost substantially as this has all depended purely on timing and when the buy-in was. If someone still has about 20 to 25 years until retirement, there isn’t any need to take such risks,” Rupert Connor of Abacus Financial Consultant says.
He adds that if a person is interested in owning a business or growing a property portfolio to increase their retirement income, this can be encouraged provided they keep in mind the overall risk profile of these assets.
Unresolved crisis
Russia and Ukraine have been locked in a bitter conflict since 2014, when Ukraine’s Kremlin-friendly president was ousted, Moscow annexed Crimea and then backed a separatist insurgency in the east.
Fighting between the Russia-backed rebels and Ukrainian forces has killed more than 14,000 people. In 2015, France and Germany helped broker a peace deal, known as the Minsk agreements, that ended large-scale hostilities but failed to bring a political settlement of the conflict.
The Kremlin has repeatedly accused Kiev of sabotaging the deal, and Ukrainian officials in recent weeks said that implementing it in full would hurt Ukraine.
Credit Score explained
What is a credit score?
In the UAE your credit score is a number generated by the Al Etihad Credit Bureau (AECB), which represents your credit worthiness – in other words, your risk of defaulting on any debt repayments. In this country, the number is between 300 and 900. A low score indicates a higher risk of default, while a high score indicates you are a lower risk.
Why is it important?
Financial institutions will use it to decide whether or not you are a credit risk. Those with better scores may also receive preferential interest rates or terms on products such as loans, credit cards and mortgages.
How is it calculated?
The AECB collects information on your payment behaviour from banks as well as utilitiy and telecoms providers.
How can I improve my score?
By paying your bills on time and not missing any repayments, particularly your loan, credit card and mortgage payments. It is also wise to limit the number of credit card and loan applications you make and to reduce your outstanding balances.
How do I know if my score is low or high?
By checking it. Visit one of AECB’s Customer Happiness Centres with an original and valid Emirates ID, passport copy and valid email address. Liv. customers can also access the score directly from the banking app.
How much does it cost?
A credit report costs Dh100 while a report with the score included costs Dh150. Those only wanting the credit score pay Dh60. VAT is payable on top.
