CREDIT ratings agencies say the banks they monitor in the Gulf appear to be unscathed by the economic problems of Southeast Asia. The banks’ exposure to the region is mainly in the form of trade credits, and existing provisions should cover any doubtful loans. Analysts note, however, that most of the rating agencies only cover relatively large and well-capitalised banks in the Gulf.
Thailand’s economy plunged into crisis earlier this year with a forced devaluation of the local currency, the baht, in July. The currency has lost 40 per cent of its value against the dollar since then, damaging the ability of local banks to service their foreign debt. Thailand’s problems sparked sharp falls in the currencies of Malaysia, Indonesia and the Philippines. Growth forecasts for the region’s economies have been slashed by several percentage points to around 4-5 per cent.
Gulf Arab banks, some of which were badly burned by bad loans to Latin America in the late 1980s, appear to have relatively little exposure to borrowers in Southeast Asia. ‘We’re following one or two banks in the Gulf more closely than usual, but we’re not particularly concerned,’ says Elizabeth Jackson-Moore, an analyst with Moody’s Investors Service in Cyprus, which rates most of the Gulf’s banks. She says that one or two Gulf banks have significant exposures to borrowers from Korea, where the economy has also slowed down, but the agency has no immediate plans to downgrade any of the banks it rates.
Standard & Poor’s (S&P) also says it has not put any Gulf banks on review for a possible downgrade. This implies that if there are any problems, they are not major. S&P gives full ratings to Gulf Investment Corporation, Gulf International Bank and Arab Banking Corporation, and more limited ‘public information’ ratings for several banks in Saudi Arabia. Capital Intelligence, the Cyprus-based agency which rates a much larger number of Arab banks than other agencies, also says there are no plans at the moment to downgrade any Gulf banks specifically because of problems with lending in Southeast Asia.
The US agency Thomson BankWatch does not see any knock-on effect from Southeast Asia. ‘The majority of the higher-rated banks [in the Gulf] aren’t really exposed to the lower-tier banks [in Southeast Asia]. Most of the banks we’ve rated only have small cash exposures. It’s mostly letters of credit,’ says Bill Hassiepen, who covers the Gulf for BankWatch. The agency rated Bank of Bahrain and Kuwait for the first time in August, noting that a constraining factor in its domestic issuer rating of IC- C was lending by the bank to some Southeast Asian customers which might need extra provisioning.