Rating agency Fitch affirmed that Saudi banks have solid capital and liquidity buffers, making them less vulnerable to the impact of the recent regional conflict that has followed attacks launched by Israel and the US on Iran on February 28.
“The effect (of the regional conflict) on Saudi banks’ credit profiles is not likely to be significant, given their solid capital and liquidity buffers,” the rating agency said in a report published on Tuesday.
“The conflict could make it more challenging for GCC-based entities to issue debt in overseas capital markets,” it said, adding that this could particularly increase Saudi banks’ reliance on more expensive domestic markets, raising funding costs or leading to a slightly sharper slowing of loan growth than we had previously expected.
Fitch also said Gulf Cooperation Council (GCC) banking systems face few immediate credit risks from the regional conflict and that bank ratings in the GCC are mostly driven by our expectations of sovereign support.
“GCC sovereign ratings generally have sufficient headroom to withstand a short regional conflict that does not escalate significantly further, including in most cases substantial assets that provide a buffer against short-term hydrocarbon revenue disruption,” the rating agency noted.
However, Fitch warned that lasting damage to key energy infrastructure or protracted hostilities could pose risks to these ratings.
“The longer-term orientation and stability of Iran’s government, and the associated implications for regional security, are unclear and could have negative or positive sovereign rating implications,” it said.
Geopolitical risk has long been an important credit consideration for GCC issuers, including banks, although the regional breadth and scale of the ongoing attacks is unprecedented, the rating agency added.
Fitch also said it believes a key area to watch will be the strength of operating conditions, particularly non-oil growth and general confidence in the region, as these are important for banks’ credit profiles.
