The global banking sector has limited direct exposure to the escalating conflict in the Middle East, but could be affected by a negative economic growth shock, says Morningstar DBRS.
In a report Wednesday, the rating agency said the banks that it covers don’t have direct, material exposure to the region — and as a result, it sees no immediate impact on the banks’ credit ratings.
For the Canadian banks, DBRS said their exposures to counterparts in the Middle East “are very minimal in both absolute terms as well as a percentage of their total exposures.”
“Specifically, no Canadian bank we rate reported a material exposure to any countries in the region or their entities. Overall, Canada has limited trade with the region and banks do not participate in large scale infrastructure projects,” the report noted.
As for other global banks, such as Citigroup and HSBC, DBRS said it believes their exposures are minimal too — although, it noted that banks’ disclosures often lump the Middle East in with broader geographic reporting, under Europe, the Middle East and Asia, which limits transparency.
DBRS also cautioned that an intensifying conflict could have negative macro effects — such as an oil price shock — that would “complicate the outlook for inflation and dampen spending by consumers and businesses.”
“If economies do deteriorate, loan loss provisioning/the cost of risk will likely increase pressuring profitability,” the report said. “Nonetheless, we see no near-term adverse impact to our banking global credit ratings.”