Japanese Banks Plug The Financing Gap Amid Tightening Gulf Liquidity

With GCC bank deposits shrinking and those in Japan flush with ‘QE’ cash, Japanese and other East Asian banks are increasingly dominant in the Gulf syndicated loan and project finance markets.

The 60% fall in oil prices since mid-2014 has been keenly felt by the GCC states for whom oil exports are the key engine of the economy.

Tightened regional liquidity has pushed up the local cost of funding and with it the cost of lending for GCC banks, while lower oil prices have led to a drawdown in government deposits.

In the UAE and Qatar, government deposits are down 10% from mid-2014, while Kuwait and Saudi Arabia have seen growth rates fall to near zero.

Stretched GCC bank balance sheets led ratings agency Moody’s on 7 March to place 31 out of the 56 GCC banks it rates on review for a downgrade. In Saudi Arabia, Bahrain and Oman all rated banks are under review. Bahrain and Oman have already had their long-term sovereign ratings downgraded, while Saudi Arabia’s is under review (see p16). (CONTINUED - 1804 WORDS)