Counterparty risks in the Middle East rising

S&P Downgrades Saudi Banks Amid Low Oil Prices

Riyad Bank, National Commercial Bank, Al Rajhi Bank and Samba Financial Group downgraded to BBB+.

Ratings agency Standard & Poor’s (S&P) has today downgraded several Saudi banks as low crude oil prices continue to adversely impact the economic activity across the world’s number one oil exporting country.

S&P analysts have warned of about an increase in non-performing loans, a closely monitored measure of borrowers who are falling behind on their loans and an overall fall in profitability as credit conditions tighten.

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According to Suha Urgan, an analyst at S&P” “Banks in Saudi Arabia now face higher economic risk due to the fall in oil prices and the ensuing slowdown in the Saudi economy.”

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The one notch downgrades lowered ratings on Saudi Arabia-based Riyadh Bank, National Commercial Bank, Al Rajhi Bank and Samba Financial Group to triple B plus which is three levels above sub-investment grade territory. S&P also affirmed its triple B plus ratings on Banque Saudi Fransi and Arab National Bank.

Although benchmark international oil prices have rallied more than 40 per cent from the lows touched in January, crude oil prices remain 66 per cent below a recent peak in 2014. Brent crude was hovering just below $40 a barrel on Thursday.

Saudi Arabia has conceded market share in the last three years while oil production in Russia, Iraq and the US increased. Oil ministers in Russia and Saudi Arabia reached a provisional agreement to freeze output last month, however the market seems to have priced the move in.

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