GCC banks resist external fund outflows and geopolitical tensions

Most GCC banking systems can sustain large outflows of external funds without additional support, as political disruptions tend to trigger investor risk aversion and cause capital outflows from banking systems to higher markets. high risk, according to a new report released Thursday.

Global ratings agency S&P said Gulf Cooperation Council (GCC) banks have remained remarkably stable and the main funding item – private domestic deposits – has grown year-on-year over the past year. over the past three decades, despite a series of disruptive regional events, including the Yemeni civil wars, Arab Spring, Iraq war, Qatar boycott and Houthi attacks.

On average, GCC banks account for about a third of their economies’ total external liabilities, with banks in Oman and Saudi Arabia contributing less than 10 percent of total liabilities and Qatari and Kuwaiti banks contributing over 40 percent. %.

The banking systems of the United Arab Emirates, Kuwait and Saudi Arabia have modest net foreign positions, while the banks of Oman are small net debtors. Bahrain’s retail banks and the Qatari banking system are in a larger net foreign debt position, S&P said.

“While some vulnerabilities are on the rise, including continued growth in external funding, a potentially growing proportion of expatriate deposits and reduced sovereign asset coverage potentially supportive of funding bases, our hypothetical stress scenarios show that banks GCC can withstand large external funding outflows without additional support,” Young added.

Stable deposits

The rating agency noted that deposits in the GCC banking system have continued to grow and have remained remarkably stable despite significant political instability, including the Arab Spring, financial crises, wars, boycotts and strikes. missiles.

“We generally expect domestic deposits to be more stable as they constitute residents’ working capital and savings. just under $550 billion,” said Benjamin Young, credit analyst at S&P Global Ratings.

Young added that large outflows of remittances have reduced the stock of potentially less stable deposits and that confidence-building actions by public sector entities have helped reduce the volatility of domestic financing during shocks.

He said deposits from GCC citizens will also continue to grow as the population grows and more recently pandemic-related savings have increased.

Discounts

S&P said that although remittances from the region grew in line with population until 2014-2015, when oil prices corrected, they have since remained relatively stable at around $130 billion ($477 billion). dirhams) per year.

“The United Arab Emirates is an exception in that outward remittances have continued to increase, given that a significant portion of the population resides in Dubai, whose economy is not directly driven by oil. Since then, regional populations and domestic retail deposits have continued to grow while remittances have remained stable, which could imply that expatriates now account for a larger portion of domestic deposits,” he said. declared.

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Shirlene J. Manley