Doha: The strength of earning capacity of banks in the GCC will help them navigate the shocks related to COVID-19 and the oil price drops, S&P Global Ratings said yesterday. It expects most of the banks to generate positive net income in 2020.
The rating agency noted the GCC banks have raised around $20bn of hybrid capital the GCC banks instruments over the past five years and some of them are reaching their first call dates in 2020.
The S&P sees COVID-19 pandemic and the drop in oil price as a profitability rather than a capital event, and therefore it does not foresee banks systematically skipping coupon payments on their hybrid instruments or writing down the principal amount.
S&P Global Ratings credit analyst Mohamed Damak said: “Overall, we estimate that rated GCC banks could absorb up to a $36bn shock before starting to deplete their capital base. This corresponds to about 3x our calculated normalized losses, which implies a substantial level of stress in our view”
The rating agency said that some GCC issuers have already proactively refinanced some instruments approaching their first call date in 2020, benefiting from then-supportive market conditions. It expects such issuers to call the instruments unless the regulator prevents them from doing so or the banks’ decide to extend call dates.
