Standard & Poor’s (S&P) is reviewing credit ratings on 50 banks in the Middle East and North Africa under a new set of criteria, a move that could result in higher funding costs for lenders already hit by the euro zone crisis and the Arab Spring revolts.
The agency, which last month classified Bahrain’s banks as the riskiest in the GCC (Gulf Cooperation Council), and saw a weak credit profile for United Arab Emirates lenders, expects more activity in debt capital markets as bank lending struggles, a senior S&P executive told Reuters in an interview.
“We look at 25 banks in the GCC region. We also rate banks in Tunisia, Egypt, Jordan, Lebanon so across the MENA, we look at 50 credits,” said Timucin Engin, associate director, financial institutions, at S&P, adding that he expected decisions by year-end.
The agency late last month cut its ratings on 15 big global banks, mostly in the Europe and the United States, as a result of the revamp of its ratings criteria.
JPMorgan Chase & Co, Bank of America Corp, Citigroup Inc, Goldman Sachs, Barclays Plc , and HSBC Holdings Plc were among the banks that had their ratings reduced by one notch each.
Engin said that S&P expected European banks to be less active in lending in the GCC area given the euro zone crisis and higher capital requirements under Basel III.
He said that given the funding and liquidity metrics of the GCC banks, excluding Saudi Arabia, S&P felt that the banking systems may lack the capacity to fill the potential funding gap.
“S&P believes we might see more lending activity through the debt capital markets ̶ sukuks, bonds et cetera. Particularly the sukuk space could be interesting,” he said.
Stuart Anderson, S&P Middle East’s managing director, said that there were many companies planning to grow and needed to fund this growth.
“Many companies in this region could do with additional capital. That probably will not be forthcoming. So it makes sense for them to consider more stable and longer maturity bond options,” he said.
Last month, S&P published its revised BICRA (Banking Industry Country Risk Assessment) methodology, designed to evaluate and compare global banking systems.
In the GCC, S&P affirmed the BICRA score on Qatar at 4, changed the BICRA score on Kuwait and Oman from 5 to 4, Saudi Arabia from 3 to 2, UAE from 4 to 5 and Bahrain from 5 to 6.
A BICRA is scored on a scale from 1 to 10, ranging from the lowest-risk banking systems (group 1) to the highest-risk (group 10).