Value of Saudi capital market jumps 476% over 5 years to $2.6 billion: CMA
RIYADH: Banks in the Gulf Cooperation Council region are closely tied to their respective sovereigns and have no exposure to recently bankrupt US banks, global credit rating agency Moody’s said.
According to a recent report by Moody’s Investors Service, GCC banks’ large franchises and significant government presence on banks’ balance sheets support their resilience.
The rating agency noted that banks in the GCC region often have large retail and corporate banking franchises. Governments in the region are primarily represented on banks’ balance sheets as major shareholders, borrowers and depositors, which fosters a cooperative and interconnected operating environment.
The report adds that the region continues to hold direct and indirect equity in the banking system through public sector institutions, pension funds and corporations.
They support banks’ funding profiles with steady deposit inflows, which have increased due to rising oil revenues in 2022.
In addition, governments also provide lending opportunities to GCC banks, which play a vital role in implementing governments’ economic diversification programs in the non-oil sectors of the economy – where they conduct most of their lending activities – which are supported by public spending, especially in Saudi Arabia.
“All of these factors ensure that GCC banks remain at the heart of regional economies and will protect them against sudden market shocks,” Moody’s said in a statement.
As of December 2022, across GCC banking systems, reliable and low-cost customer deposits made by customers covered the majority of non-equity liabilities held by GCC banks, accounting for nearly three-quarters of the total liabilities.
On the Islamic finance front, Islamic finance is growing rapidly in GCC banking institutions as deposits in these banks are cheaper than in traditional banks and contribute to bank profitability especially in times of interest rates students.
At the end of 2022, Saudi Arabia has the largest Islamic banking franchise, with near-zero cost deposits accounting for 55% of total deposits (Islamic and conventional), according to the rating agency’s report .
Moody’s also pointed out that Gulf banks have adequate liquidity reserves and low reliance on confidence-sensitive market funding.
“We expect banks’ reliance on more volatile market funding to remain stable, averaging around 20% of tangible bank assets, except in Saudi Arabia where banks will likely seek additional market funding given the substantial credit demand,” Moody’s said.
They also added that Saudi banks tend to hold onto longer-term bonds, with a good portion of their held-to-maturity portfolios comprising floating-rate securities.
Value of Saudi capital market jumps 476% over 5 years to $2.6 billion: CMA
