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The major banks in the Gulf Cooperation Council (GCC) countries have taken contingency measures that provide them with an additional cushion in a war scenario, according to a survey by Standard & Poor’s Ratings Services.

The survey covered banks in

  • Bahrain (A-/Stable/A-2), Kuwait (A+/Stable/A-1+), Oman (BBB/Stable/A-3), Qatar (A-/Positive/A-1), Saudi Arabia (not rated), and the United Arab Emirates (not rated).

    “While Gulf banks’ contingency plans differ substantially, they all tend to lay particular stress on funding and liquidity, IT systems and key operations, and staff security,” explains Anouar Hassoune, Standard & Poor’s credit analyst and one of the authors of the report.

    The survey and analysis followed the publication by Standard & Poor’s on February 11, 2003, of a report on the consequences on sovereign ratings of a war in Iraq (“Consequences of a War in Iraq on Sovereign Credit Ratings”, available on RatingsDirect, Standard & Poor’s web-based credit analysis system). In the sovereign report, Standard & Poor’s opinion was that, should war break out, all the rated sovereigns in the Middle East would come under scrutiny. That said, given the intrinsic merits of the GCC states, they seem less vulnerable to downside political and economic risks than other Middle Eastern rated sovereigns.

    “In such a context, the cushion from the contingency planning comes in addition to the banks’ generally solid capitalization and liquidity,” says Standard & Poor’s credit analyst Emmanuel Volland, a co-author of the report. “Most GCC banks enjoy good access to customer deposits and tend to be net placers of funds in international markets. Consequently, the ratings on the Gulf banks would not likely come under critical downward pressure in the event of a conflict, provided that the conflict was short.”

    Providing additional comfort is the implicit or explicit commitment of regional central banks to support their respective banking systems, if need be. Finally, banks in the Gulf usually have physical presence abroad, providing them with the ability to rapidly transfer critical operational processes away from any war scene.