GCC banks 'plan to issue subordinated debt'
Dubai, March 20, 2013
Banks in the GCC region are looking to issue subordinated debt in the international markets, thanks to the sovereign support for these lenders which remains sufficiently strong, according to Fitch Ratings.
Fitch's ratings for GCC banks' subordinated debt often factor in a high probability that sovereign support will be available for this debt class if and when required.
It is Fitch's view that sovereign support, while possible, cannot be sufficiently relied upon to flow through to bank hybrids and subordinated securities, the rating agency said.
Fitch's criteria recognise that in certain jurisdictions such as the GCC, the likelihood of sovereign support remains sufficiently strong, at least for some issuers, for the agency to continue to factor sovereign support into ratings of securities with gone-concern loss absorption features.
In these cases the issuer's long-term issuer default rating, which can be based on potential sovereign support, is used as the anchor rating, said Fitch in its statement.
At the present time, in Fitch's opinion, GCC sovereigns are exceptional in terms of being highly supportive of their banking systems.
This is reflected in the authorities' strong track record of support, the high degree of state (or ruling family) ownership and influence in the banks, the strong hands-on control exercised by regulators, the absence in most countries of deposit insurance schemes, and the lack of reliance on tax-payer funds to support banks.
It is likely that the degree of state ownership in each bank will influence the extent to which Fitch expects sovereign support to flow through subordinated debt.
Fitch revealed that it is in discussion with central banks and rated banks in the GCC as to when Basel III guidelines will be fully implemented and how considerations around resolution and potential bail-in are developing in the region.
Central banks have yet to issue specific guidelines on the treatment of hybrid issuance under Basel III and therefore it is difficult to predict how the central banks will treat subordinated debt already issued.
Fitch said it will review its ratings approach to subordinated debt in the GCC region if and when any developments in the regulatory approach emerge that prompt it to do so.-TradeArabia News Service
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