Gulf States banks feel­ing oil price pain

The Pak Banker - - COMPANIES/BOSS -

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.

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