Gulf Banks Show Limited Exposure To U.S. Subprime Market
The exposure of Gulf banks to U.S. subprime mortgage-related instruments is generally limited, said Standard & Poor's Ratings Services in a new report published this week, "Rated Gulf Banks Show Limited Exposure To U.S. Subprime, Special S&P Survey Shows." The survey of the largest banks Standard & Poor's rates in the Gulf Cooperation Council (GCC) region also shows that knock-on effects of the current deterioration in the subprime market are limited as well. "We don't expect negative rating actions on these Gulf banks in the foreseeable future due to subprime-related problems," said Standard & Poor's credit analyst Emmanuel Volland. Although GCC banks have postponed some debt issues in recent weeks due to tightening market conditions, these deals are likely to close successfully after summer, given the region's bright outlook. Economic growth is set to remain sound in the context of record-high oil prices.
The financial profiles of these banks are strong, with good asset quality, high profitability, and robust capitalization. The survey assessed the exposure of about 20 of the largest banks we rate in the Gulf to U.S. subprime mortgage-related instruments. Although Standard & Poor's conducts a thorough review of exposure to structured products as part of our normal rating process, recent deterioration of the subprime market and subsequent tightening of market conditions led us to conduct this special survey. "Our main finding is that the vast majority of banks have no or insignificant exposure to U.S. subprime instruments. Although a few banks reported some exposure, we believe that any risk it might carry would be manageable, as the bulk of it is to highly rated tranches," said Mr. Volland. We estimate that the mark-to-market impact of the exposure will be minimal on bottom-line profitability--especially because most of the assets in question are accounted as available for sale. The aggregate subprime exposure of the banks in our survey stands at less than 1% of their total assets. The bulk of the exposure is concentrated on a few issuers. Two-thirds of the aggregate exposure is high investment grade, however, mainly in the 'AAA' and 'AA' categories. We will continue to monitor the situation actively, and, if needed, make public any change in our current opinion about the credit quality of banks in the GCC region. Source
The financial profiles of these banks are strong, with good asset quality, high profitability, and robust capitalization. The survey assessed the exposure of about 20 of the largest banks we rate in the Gulf to U.S. subprime mortgage-related instruments. Although Standard & Poor's conducts a thorough review of exposure to structured products as part of our normal rating process, recent deterioration of the subprime market and subsequent tightening of market conditions led us to conduct this special survey. "Our main finding is that the vast majority of banks have no or insignificant exposure to U.S. subprime instruments. Although a few banks reported some exposure, we believe that any risk it might carry would be manageable, as the bulk of it is to highly rated tranches," said Mr. Volland. We estimate that the mark-to-market impact of the exposure will be minimal on bottom-line profitability--especially because most of the assets in question are accounted as available for sale. The aggregate subprime exposure of the banks in our survey stands at less than 1% of their total assets. The bulk of the exposure is concentrated on a few issuers. Two-thirds of the aggregate exposure is high investment grade, however, mainly in the 'AAA' and 'AA' categories. We will continue to monitor the situation actively, and, if needed, make public any change in our current opinion about the credit quality of banks in the GCC region. Source
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