JEDDAH – Moody's Investors Service has downgraded the subordinated debt ratings of 12 banks in the GCC countries. The banks affected are: Arab National Bank, Banque Saudi Fransi, Abu Dhabi Commercial Bank, Emirates NBD, First Gulf Bank, Mashreqbank, Commercial Bank of Qatar, Doha Bank, Qatar National Bank, Bank Muscat, Burgan Bank and BBK, Moody's said in a statement issued recently. All other ratings and outlooks for the 12 banks remain unaffected. The ratings agency has downgraded the subordinated debt ratings of the 12 GCC banks (by one to three notches) to reflect the heightened risk of the imposition of losses on these instruments. The action concludes the reviews of the banks' ratings initiated by Moody's in March. Although the downgrades capture the evolving risk profile of subordinated debt, Moody's continues to recognize the unique record, capacity and willingness of Gulf authorities to extend support, particularly to government-owned banks. “The downgrade of the subordinated debt ratings is driven by Moody's view that the risk profile of junior debt instruments has increased, given global regulatory trends of imposing losses on junior creditors as part of bank bailouts orchestrated by governments,” Moody's said. “Although there have been limited policy signals from GCC regulators regarding the introduction of burden-sharing for subordinated debt instruments, Moody's recognizes that the local authorities, like their global counterparts, are generally keen to reduce the moral hazard that is present within such supportive systems,” it added. Moody's sees an increased risk that junior instruments could be ‘bailed-in' alongside new Basel III-compliant contractual non-viability securities issued in the future, particularly for banks without government shareholdings. “Under Basel III, which will be implemented in all GCC countries over the next few years, subordinated debt instruments will likely have mandatory loss-absorbing features that can be triggered by the provision of government support.” While the downgrade does not include such loss-absorption features, Moody's said it has observed regulators in other jurisdictions using their statutory powers to share losses with existing subordinated debt holders regardless of the contractual obligations within such instruments. — SG
