Outlooks on six GCC banks revised to stable on weakening operating conditions; ratings affirmed

At the same time, we affirmed our long- and short-term counterparty credit ratings and various debt ratings on these banks.

The banks we took the rating actions on are Emirates Bank International PJSC (EBI), National Bank of Dubai (NBD), Kuwait Finance House (KFH), Burgan Bank (Burgan), BankMuscat S.A.O.G., and BMI Bank B.S.C. (BMI).

"The outlook revisions mainly reflect the less supportive environment in which these banks operate," said Standard & Poor's credit analyst Emmanuel Volland.

"The impact of the global market turmoil, plunging oil prices, falling stock markets, and the liquidity dry-up is creating fresh challenges for GCC banks in terms of business growth, profitability, asset quality, and liquidity. These developments, combined with specific factors at each bank, reduce the likelihood of near-term upgrades for these banks."

We believe the macroeconomic fundamentals of the GCC countries remain sound. But the expected economic slowdown and tighter liquidity in the region's financial markets will dampen GCC banking systems' performances for the rest of 2008 and throughout 2009.


Growth prospects are weaker than previously anticipated because liquidity has declined and funding costs are set to remain higher than in the past.

Expected lower loan growth could ultimately put pressure on some sectors of the GCC economies and accelerate the correction in the real estate sector, which would inflate banks' cost of risk.

"Notwithstanding these issues, the GCC financial systems are better positioned to face the current tumult than most other systems in emerging markets given their strong financial profiles and support from their governments," added Mr. Volland.

Standard & Poor's classifies the six GCC countries as "interventionist" toward their banking sectors, meaning that we expect that each government would likely provide support to systemically important banks if necessary.

The long-term ratings on Gulf private sector banks that we consider to be systemically important therefore benefit from an uplift from their stand-alone creditworthiness.

These banks include, among others, EBI, NBD, KFH, Burgan, and BankMuscat.

We consider that BMI's 49% ownership by, close cooperation with, and strategic importance to BankMuscat mean that strong support would be highly likely in case of need.

The good track record of support also underpins our opinion.

BMI's long-term rating is therefore two notches above the bank's stand-alone creditworthiness.

The outlooks on the six banks are stable.

In addition, we have affirmed the ratings on these banks because our expectations for a less supportive operating environment are counterbalanced by the banks' specific strengths and continuous government support to their banking sector.

The ratings could be lowered or the outlooks revised downward if the environment worsens markedly, tight global liquidity starts to affect more severely the GCC markets, or the banks' financial profiles erode significantly.

We could raise the ratings if operating environment pressure eases, the banks demonstrate a superior resilience to current market conditions, or they improve their financial profiles substantially.