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Global Credit Research - 14 Jun 2010
Paris, June 14, 2010 -- From Morocco to the Straits of Hormuz, banks in the Arab world have
been comparatively well insulated from the effects of the recent global
financial disruption and ensuing recession, says Moody's Investors
Service in a new Special Comment. However, Moody's
notes that the region's banks continue to face challenges that vary
dramatically from one sub-region to another, as reflected
in the banks' different risk profiles.
"The main reasons for the resilience of Arab banks to the crisis
are (1) the capacity among both conventional and Islamic banks to adapt
to macro-economic adversity; (2) their minimal exposures to
subprime-related asset classes; (3) government support and
sometimes intervention; as well as (4) local and regional idiosyncrasies,"
explains Anouar Hassoune, VP-Senior Credit Officer at Moody's
Paris office and author of this report.
Moody's new report, entitled "Arab Banks: Shielded
Domestic Market Underpin Resilience to Crisis", reviews the
key factors that allowed most regional banks to maintain stable creditworthiness
during this turmoil.
One key factor is that, with very few exceptions, banks in
the Arab world had minimal exposure to subprime-related asset classes
or structured debt derivatives, and fewer still to troubled global
investment banks. Moody's believes that this is because banks
in this region had limited incentives to seek inflated returns abroad
when domestic markets offered a far better risk-return trade-off.
The fostering of a largely insulated domestic market in the Arab world
was also aided by the supportive -- and sometimes interventionist
-- attitude of regulators and states, but it was also the result
of much improved macroeconomic structures within countries, which
our sovereign ratings have captured over the past decade.
"However, challenges remain and the current crisis has shed
light on the different risk profiles of banks, contributing to the
strengthening of some, while weakening others," says
Mr. Hassoune. The financial landscape of the Arab world
had begun changing before the crisis, but the current environment
is forcing faster adjustments. Moody's believes that banks
will not see the benefits of these adjustments in the near term,
but rather in the longer run.
The current issues in this sector vary dramatically from one sub-region
to another. "This reflects the strong diversity of banking
in the Arab world, despite increasing business, financial
and economic intra-regional links," says Mr.
Hassoune. For example, while liquidity and asset concentration
remain the issues among GCC banks, North African banks face the
challenge of keeping up with the pace of banking reforms.
Overall, while Moody's maintains a stable outlook on most
banking systems in the Arab world, there are three GCC countries
on whose banking systems Moody's maintains a negative outlook,
namely Bahrain, Kuwait and the United Arab Emirates (UAE).
These three banking systems have been the most affected by the liquidity
drought, the sharp fall in asset prices (especially those of properties)
and the dramatic negative impact suffered by specialised institutions
(like investment houses and real estate companies) as a result of a concentrated,
wholesale funding strategy and massive asset impairments. This
is particularly evident in the UAE, where a sharp rise in credit
delinquencies has incrementally weakened banks' profiles.
In the region of the Middle East and North Africa (MENA), Moody's
rates 69 banks, including 49 in the GCC (of which ten are fully
fledged Shari'ah-compliant financial institutions),
13 in North Africa and seven in the Levant.
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Moody's: Arabian Banks' Shielded Domestic Markets Underpin Resilience To Crisis
No Related Data.
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