Rated Gulf banks can absorb up to $36 billion shock before moving into red: S&P

Rated banks in the Gulf can absorb up to a $36 billion shock before depleting their capital bases, S&P Global Ratings said on Sunday, adding that banks in Bahrain, Oman and the United Arab Emirates are the most vulnerable to increases in cost of risk.

FILE PHOTO: A general view of Business Bay area, after a curfew was imposed to prevent the spread of the coronavirus disease , in Dubai, United Arab Emirates, March 28, 2020. REUTERS/Satish Kumar/File Photo

The $36 billion shock that S&P estimates banks can absorb is about three times the agency’s calculated normalised losses, “which implies a substantial level of stress,” it said.“This is because financing growth will remain limited, with banks focusing more on preserving their asset-quality indicators than generating new business,” it said, adding it expected asset quality will deteriorate and cost of risk would rise.

“In our view, the support measures enacted by GCC governments will at best delay this problem, in the absence of additional measures,” it said, though it added banks’ low cost base and potential new cost-saving measures next year could benefit them.

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