In a recent report, rating agency Fitch affirmed that Saudi banks possess solid capital and liquidity buffers. This makes them less vulnerable to the impact of the recent regional conflict that followed attacks by Israel and the US on Iran on 28 February.
“The effect (of the regional conflict) on Saudi banks’ credit profiles is not likely to be significant, given their solid capital and liquidity buffers,” Fitch stated in its report published on Tuesday.
However, the conflict could present challenges for GCC-based entities looking to issue debt in overseas capital markets. This might increase Saudi banks’ reliance on more expensive domestic markets. It could also lead to a slightly sharper slowing of loan growth than previously expected.
Minimal Immediate Credit Risks
Fitch also noted that Gulf Cooperation Council (GCC) banking systems face few immediate credit risks from the regional conflict. Bank ratings in the GCC are mostly driven by 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 explained.
Long-term Outlook and Risks
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, remain unclear. This could have negative or positive sovereign rating implications.
Geopolitical risk has long been an important credit consideration for GCC issuers, including banks. Although the regional breadth and scale of the ongoing attacks are unprecedented, Fitch emphasized the importance of operating conditions. Particularly non-oil growth and general confidence in the region will be crucial for banks’ credit profiles.
