Oil price slump hits Middle Eastern banks
The Middle Eastern banking sector has remained relatively isolated from the worst of the crisis in the financial markets, but its banks are being hit indirectly by the wider global economic downturn and plunging commodity prices, in particular oil.
Bahrain's financial fortunes have been severely shaken by the downturn and it became the first Middle Eastern state to have its sovereign credit rating outlook downgraded from 'stable' to 'negative' by Moody's at the beginning of 2009.
The Bahrain-based Gulf International Bank dropped down the global rankings from 246 (with amended figures) in 2008 to 302 in 2009. Tier 1 capital fell 16.6% to $1.9bn, from $2.4bn in calendar year 2007. Bahrain's other banks have also failed to impress, with just two, Arab Banking Corporation and Awal Bank, making it into the Top 25 Middle Eastern banks ranking for Tier 1 capital.
Elsewhere, Standard & Poor's put four Dubai-based banks on review for downgrade and forecast that a contracting economy and weak property sector could weigh heavy on the financial sector. "The global economic downturn continues to depress some of Dubai's key economic sectors, including trade, tourism and commerce," said the rating agency in a statement in March.
Total aggregate pre-tax profit in the Middle East fell a whopping 20.7% from $29.4bn in year 2007 results to $23.3bn in calendar year 2008 (the basis for this year's ranking). But it was not all bad news. The weakness of the banking sector was somewhat mitigated by the continued growth in Islamic finance.
The Gulf Co-operation Council (GCC) states amassed the largest slice of growing global aggregate Islamic finance assets in calendar year 2008. The GCC states accounted for $262.7bn of the total of $638.3bn, which is 41.2% of total Islamic finance assets.
Elsewhere in the rankings, Saudi Arabia once again dominated the Middle East, with seven banks in the top 25. National Commercial Bank of Saudi Arabia was once more head of the list, but its Tier 1 capital plummeted 15% and it slipped 11 places to 120th in the world rankings. Riyad Bank had the most notable success in the region this year. The bank nearly doubled its Tier 1 capital, from $3.5bn in calendar year 2007 to an impressive $6.1bn in calendar year 2008, and shot from 11th in the region to second.
Outside the GCC, Iran had strong growth in its banking sector on the back of the rise in Islamic finance, and two banks, Bank Saderat Iran (18th) and Bank of Industry and Mine (19th), made the Middle East's Top 25.
Top 25 Middle East ($M)
Middle East Tier 1 capital: assets %
Middle East pre-tax profits: capital %
