S&P Industry report card on major Gulf banks launched

The industry report card on major Gulf banks will be published twice a year, allowing investors to follow closely major market developments in the region's rapidly evolving economies. It complements Standard & Poor's Bank Industry Risk Analysis reports on Saudi Arabia, Kuwait, United Arab Emirates, Bahrain, Qatar, and Oman.

According to the first of these reports published today, "Major Gulf Banks Demonstrate Strong Financial Performance Amid Persisting Structural Impediments", Gulf banks displayed strong financial performance during the first half of 2006, despite sharp stock market corrections. Nevertheless, most of them will be challenged to repeat their 2005 financial performance and maintain strong asset quality. In this context, retail lending and further access to Islamic banking will be key performance drivers.

The average rating on Gulf banks during the past six months has been 'A-', compared with 'BBB+' at the end of 2005.

"This trend reflects not only the robust financial performance of GCC country banks but also our increasing confidence that some shareholders and governments will step in to support these financial institutions in case of need," said Standard & Poor's credit analyst Emmanuel Volland. "In the first half of 2006, we upgraded eight Gulf banks based on a greater weighting of potential extraordinary government support in their creditworthiness," he said.

"The ratings remain constrained, however, by the economic and industry risks embedded in the operating environment, and are expected to remain relatively stable in the short to medium term," said Standard & Poor's credit analyst Mohamed Damak.

According to the report, the number of entities rated by Standard & Poor's is expected to grow in the second half of 2006, reflecting the increasing needs of banks in this region to access international debt markets.