Business | Banking
Moody's bullish on Gulf ratings
Gulf Arab states are among the best positioned in the world to withstand the effects of the credit crisis and there is no pressure on their sovereign credit ratings, Moody's senior analyst for the region said on Sunday.
- Reuters
- Published: 23:56 September 28, 2008
Dubai: Gulf Arab states are among the best positioned in the world to withstand the effects of the credit crisis and there is no pressure on their sovereign credit ratings, Moody's senior analyst for the region said on Sunday.
"Currently, there is no downward pressure on any sovereign ratings in the Gulf," Tristan Cooper said. "These economies are still performing strongly, with wide twin surpluses and large cushions of foreign financial assets."
"Out of any in the world, these countries have to be considered among the best placed to deal with the global financial turmoil, at least from a macro perspective."
Surpluses
Gulf governments have posted huge current account surpluses in recent years on the back of a five-fold increase in the price of oil since 2002. Much has been invested in infrastructure and development, with some warehoused in large sovereign wealth funds like the Abu Dhabi Investment Authority (ADIA).
But tensions in the banking sector in the UAE have intensified in recent weeks as investors withdraw deposits initially made in hopes that Gulf states would be forced to revalue their currencies against the US dollar to fight inflation.
Those hopes were dampened in April when the UAE said it would keep its dirham pegged to the dollar at the same rate.
Investors have reacted by withdrawing their deposits, prompting the UAE central bank to launch last week a Dh50 billion emergency facility to address tension in the money markets.
"Clearly there have been liquidity effects on the banking sector in some Gulf countries as sentiment has turned and currency speculators have withdrawn deposits," Cooper said.
"Financing is going to become, or already has become, more difficult and more expensive."
But Gulf banks have mostly avoided exposure to the types of assets that turned toxic during the credit crisis in the United States, he said.
Tighter credit conditions could, in fact, be beneficial to the Gulf, which has been dogged by record inflation due to soaring import costs and bottlenecks in supplies for the region's construction boom. "You're going to see a slowdown in credit growth, but from high levels. It might be beneficial to have a slowdown, given high inflationary pressures," he said.
Moody's foreign currency government bond ratings are A1 for Saudi Arabia and Aa2 for the UAE.
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