JEDDAH – Banks in the Gulf Cooperation Council (GCC) region have capitalization that generally exceeds their international peers', Standard & Poor's Ratings Services said Tuesday in its report "Gulf Banks' Capital Positions Compare Well With Those Of Global Banks". The risk-adjusted capital (RAC) framework, which S&P used to measure banks' capital adequacy, indicates that the average RAC ratio for GCC banks stood in the 12 percent-13 percent range as of end-December 2011- about 5 percentage points higher than the 7.4 percent average "we projected for the 100 largest banks we rate in September 2011." S&P considers that GCC banks' capital and earnings are "strong." In addition, not only do GCC banks' RAC ratios outperform those of our top 100 rated banks, but they also rank highest among other regions'. "We believe there are two primary factors underlying GCC banks strong capitalization metrics," said Standard & Poor's credit analyst Paul-Henri Pruvost. "First, banks in all GCC countries, except Saudi Arabia, must maintain regulatory capital adequacy ratios above 10 percent. In addition, GCC banks tend to operate with substantial headroom ranging from 3 percent to 23 percent for the banks we rate," he added. While GCC banks tend to outdo their larger international peers in terms of capitalization, they have weaker risk positions. Their risk profiles include sizable single-name, sector, and geographic concentration in countries that have higher economic risk than more mature markets in Western Europe or North America. "Still, these risks aren't sufficient to threaten their capital positions, which we expect will remain broadly stable over the next two years. This is because we forecast subdued growth in risky assets, particularly corporate financing, combined with a gradual recovery in internal capital generation thanks to reduced impairment charges." S&P rated 21 of the 26 GCC banks to have stable outlooks. Separately, Fitch Ratings has rated Islamic Development Bank's (IDB) issuance of $800 million Trust Certificates due June 26, 2017 issued by IDB Trust Service Limited, under its $6.5 billion Trust Certificate Issuance Program (TCIP) at ‘AAA'. The TCIP benefits from a guarantee provided by the IDB ; therefore, its rating is in line with IDB's Long-Term Issuer Default Rating (IDR) of ‘AAA' with a Stable Outlook. The trust certificates will take the form of sukuk, a financing instrument compliant with Shariah law, and will be used to finance planned growth in the IDB's operations. By assigning ratings to the program and certificates issued under it, Fitch does not express an opinion on the program structure's compliance with Shariah principles nor whether the relevant transaction documents are enforceable under any applicable law, including, without limitation, Saudi Arabian law. The IDB is a multilateral development bank (MDB) and is based in Jeddah, Saudi Arabia. It was established in 1975 with the aim of fostering economic development and social progress, and provides project and trade finance as well as technical assistance to its member countries. The bank operates in accordance with the principles of Islamic Law, and its financing instruments are mainly asset-backed. – SG
