FITCH says war in Iraq could be threat to some banks in Middle East

Fitch Ratings, a rating agency, says in a newly published report that banks in the Gulf would be resilient to the effects of a war in Iraq, but others, such as those in Egypt, Lebanon or Turkey would be more vulnerable.

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By  Massoud Derhally Published  March 6, 2003

Fitch Ratings, the international rating agency, says in a newly published report that banks in some parts of the Middle East, such as the Gulf, would be resilient to the effects of a war in Iraq, but others, such as those in Egypt, Lebanon or Turkey would be more vulnerable.

“Current bank ratings and outlooks are consistent with Fitch’s assessment of the regional risk profile, which assumes the war will be short and contained within Iraq,” said the rating agency in a recent report.

“However, in the event of a more adverse outcome, rating downgrades are likely to occur. These will be determined by changes in the perceived risks to which the banks are exposed rather than simply by proximity to the conflict,” the report added.

The report, entitled “Banks in the Middle East and the Threat of War”, says the prolonged build-up to war has allowed banks and banking regulators across the region to prepare themselves for any adverse impact the conflict would initially have.

“International investors to the region have also had time to reappraise their appetite for Middle Eastern risk, which should mean there is less likelihood of a sudden withdrawal of foreign funds, such as the one that occurred during the 1990/1991 Gulf crisis,” said the rating agency.

While banks in the Gulf have been strengthened by the favourable economic conditions of the last few years and are enjoying abundant liquidity, in part due to high oil prices, said Fitch, the banking systems of Egypt, Lebanon and Turkey are less robust because of macroeconomic weaknesses in these markets.

Banks in these countries would be most vulnerable to the negative implications for the regional economy or international investor confidence of a long and complicated war.

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