The global economic slowdown and financial crisis have put the banking sector in Arab states of the Gulf to the test over the past 18 months, as dozens of negative rating actions were taken throughout 2009, the agency said.
The rating actions “largely reflect the consequences of the unfavorable economic conditions on profitability and asset quality, especially for banks in Kuwait and Dubai,” it said in a report.
Most Saudi and all Qatari banks had performed relatively better than lenders in the other Gulf states.
“Despite the fact that we remain cautiously optimistic that economic conditions will improve, we do not exclude further negative rating actions in the short term,” Standard and Poor’s said.
“Lower business volumes, asset quality deterioration and subsequent provisioning needs, and pressure on liquidity appear to be affecting the creditworthiness of Gulf banks to differing degrees,” the agency added.
Most banks in the Gulf have been impacted by exposure to the Saudi groups Saad and Al-Gossaibi, problems in the Kuwaiti investment sector and the debt crisis in Dubai. This and other factors forced banks to make provisions.
A report last month by Kuwait Financial Centre (Markaz) said Gulf banks are estimated to have made provisions worth 9.4 billion dollars for 2009 against impairment of assets and credit loss, a massive 40 percent rise from 2008.
The 61 banks in the six Arab states of the Gulf region made provisions worth 6.41 billion dollars in the first nine months of last year, a five-fold surge over the modest 1.8 billion dollars set aside in 2007.
Provisions hit 6.68 billion dollars in 2008.
Standard and Poor’s said the provisions were expected to decline slightly in 2010.
