‘After completing our latest tally of GCC banks’ risk-adjusted capital ratios, based on their year-end 2016 financial disclosures and our own parameters as of October 16, 2017, we calculate an unweighted average ratio of 11.5 per cent for the GCC banks’, S&P said in a report released on Sunday.
The ratings agency expects the GCC banks’ risk-adjusted capital ratios to remain relatively stable in the next 12-24 months.
‘This result underpins our strong or very strong assessments of capital and earnings for 72 per cent of the Gulf banks we rate’, S&P Global Ratings credit analyst Mohamed Damak said in the report.
‘Their quality of capital remains strong, even though we have observed higher recourse to hybrid instruments over the past few years’, Damak added.
S&P observed the strongest quality of capital in Oman and Saudi Arabia where, it said, capital almost exclusively comprises tier 1 instruments.
The ratings agency said at year-end 2016, eligible hybrid instruments represented on average nine per cent of the GCC banks’ total adjusted capital.
‘Credit risk and particularly exposure to corporates dominates our calculation of their risk-weighted assets. Finally, our adjusted risk-adjusted capital ratio highlights single-name and geographic concentration as additional risk factors.
We’ve reflected these in our risk position assessment and they explain why the combined impact of our assessment of capital and earnings and risk position is negative or neutral for 60 per cent of the Gulf banks we rate’, it said.
According to S&P, rated banks based in the UAE, Saudi Arabia, and Qatar enjoy the highest capitalisation while the weakest capitalisation, but still adequate, is for rated Bahraini banks. The average capitalisation for Bahraini banks and some Kuwaiti banks is weighed down by their exposures to riskier countries such as Turkey and others in the Middle East, the ratings agency said.