In a worst-case scenario, $307 billion could be withdrawn from Gulf banks by local residents, according to S&P Global Ratings.
Regional banks have about $312 billion in cash or at central banks to cover such outflows, but may be forced to cash out some investments to maintain liquidity.
The ratings agency noted there haven’t been any major withdrawals of foreign or local funding yet, but warned that if the war persists, “there could be some flight to quality between banks within the same systems, as well as external or local funding outflows.”
Bahrain and Qatar are at risk of a shortfall if depositors take flight, but both are insulated. A lot of Bahraini banks’ debt is with regional creditors, who will have an interest in avoiding “broader regional contagion,” and the potential amounts appear manageable in Doha, according to S&P.
Loans going bad is another risk. S&P noted that a 50% surge in troubled loans across the region’s top 45 banks would result in losses equivalent to more than half their annual net income.