Gulf States banks feeling oil price pain
Low oil prices are forcing Gulf states to borrow to prop up their economies and are now taking their toll on the region's banks too, complicating their efforts to raise capital required by regulators.
The impact of crude's fall from more than $100 to below $30 a barrel in less than 18 months has already been felt by oil and gas revenue dependent Middle Eastern countries which have had to borrow to prop up their economies.
And international investors have been avoiding the Gulf region's debt in recent months as a result, concerned about slower economic growth and substantial budget deficits.
This has had a knock-on effect on banks from Doha to Muscat, with the ensuing slump in stock prices and bond market volatility making it impossible for them to raise new capital so far this year, a situation which is unlikely to ease in the near future as they will have to compete with governments needing to borrow billions of dollars to pay their bills.
A dozen of the region's banks have announced capital raising plans as they try to meet local regulatory requirements, which in some cases are above the levels set by the Basel III banking accord, and top up reserves after years of lending growth.
These plans are now on ice and Gulf banks have to decide whether to attempt to borrow at a higher cost or hold out and risk falling short of more stringent regulatory requirements, which come into force over the next three years. Another potential complication is that the flight of international buyers means banks will have to turn to local investors to buy their debt or equity. The problem here is that banks themselves are the largest regional debt investors.