Fitch Ratings has identified four banks in the Gulf Cooperation Council (GCC) (in Abu Dhabi, Qatar, Kuwait and Oman) as flagship banks. 

 

The banks are First Abu Dhabi Bank (FAB; AA-/Stable/a-), Qatar National Bank (QNB; A+/Stable/bbb+), National Bank of Kuwait (NBK; A+/Stable/a-) and Bank Muscat (BM; BB+/Stable/bb+).

 

There are no flagship banks in Saudi Arabia, the GCC’s largest economy, as Fitch does not view any banks’ links with the sovereign to be sufficiently strong and strategic, compared with other GCC flagship banks, to merit this. 

 

This is despite Saudi National Bank’s (SNB; A-/Stable/a-) leading market position and 37.4% government ownership through the Public Investment Fund (A+/Stable).

 

Highest strategic importance

The flagship banks have the highest strategic importance, including dominant market positions as typically the largest franchise in their country, strong and strategic state links, typically high government or ruling family ownership, and also the important role they play for their respective sovereigns.

“The four flagship banks in the GCC have strong and strategic state links, very high systemic importance, and typically high government or ruling family ownership. This results in stronger standalone creditworthiness, which is visible through more stable metrics through the cycle, and our assessment of stronger government support than other domestic peers,” said Amin Sakhri, Director, Fitch Ratings.

 

The term flagship bank is not explicitly mentioned in Fitch’s Bank Rating Criteria. Fitch only distinguishes between commercial and policy banks, with the latter typically being government-owned and having a clear and defined policy role.

 

Strong and strategic government links

Flagship banks have close relationships with their respective governments, and this drives Fitch’s view of a heightened likelihood of sovereign support. 

 

Sovereigns in the GCC are typically very highly rated, highly reliant on oil revenues, and have a strong influence over the economy. The banking sectors are highly concentrated and exposed to their respective sovereigns. 

 

These large exposures are typically direct, mostly in the form of lending and investment securities, to the government or its related entities and large corporates, themselves often with government ownership and strategic roles.

 

GCC banks’ liabilities are also highly concentrated, with around 30% of banking sector deposits typically from the government and related entities. In addition, the banks have an important role in the diversification and the development of these emerging-market economies, and have high contagion risk. Fitch expects a very high level of sovereign support for these reasons.

 

High shares of government deposit

Flagship banks have the strongest and most strategic links with the sovereign, with high shares of government deposits or lending, or via managing the sovereigns operational accounts, and a role in supporting economic and political agenda, through presence in markets that the state or government-related entities (GREs) are doing business in, or technical expertise for government projects.

 

Flagship banks typically have prime lending access to the countries’ highest-quality entities and projects. They also have best access to funding and liquidity, as well as capital – incorporating ordinary support – supporting their higher standalone creditworthiness – often resulting in the highest Viability Ratings in the country.--TradeArabia News Service