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GCC banks navigate Credit Suisse fallout

31 March 2023

 

Saudi National Bank chairman Ammar al-Khudairy’s abrupt resignation on 27 March capped a turbulent few weeks for the world’s financial system. This period saw the kingdom’s champion bank dragged into the harsh glare of the global spotlight and serious questions asked about Gulf financial institutions’ readiness to serve as props in an increasingly jumpy financial order.

A short sentence uttered in an interview by a senior Saudi banker precipitated the collapse of a 160-year-old institution. Ruling out extending beyond its 10 per cent stake as it would entail a higher capital cost led to the fellow Swiss bank UBS buying the troubled lender at a steep discount.

Al-Khudairy took the rap for what was deemed an avoidable crisis, in which SNB took a hosing: it bought the Credit Suisse stock at CHF3.82 ($4.2) a share; UBS has paid just CHF0.76 ($0.83) a share.

The pain goes wider than SNB and the Qatar Investment Authority (QIA), the other Gulf institution directly impacted by Credit Suisse’s troubles, given its 6.9 per cent stake in the lender.

The crisis poses serious questions about the role of wealthy Gulf institutions in a global system that is increasingly reliant on them, but has yet to stress test the relationship.

On the one hand, Gulf investors have been spooked about their exposure to venerable banking institutions that were once seen as copper-bottomed plays. Conversely, Western banks may now legitimately ask whether their Gulf counterparts are reliable partners in a crisis.

Volatile landscape

The backdrop is one of wider concern about the health of global financial markets. The Credit Suisse crisis was prefaced by US regulators shutting Silicon Valley Bank (SVB) on 10 March, following mass withdrawals of customer deposits.

For now, analysts caution against panic. First, SNB’s exposure – and that of other prominent Gulf lenders – appears limited.

“The impact of SNB’s investment in Credit Suisse and the subsequent takeover by UBS on SNB are limited because the initial investment represents less than 2 per cent of SNB’s investment portfolio and 70-80 bps of the bank’s risk-adjusted capital ratio,” says Mohamed Damak, senior director, Financial Institutions Ratings, at ratings agency S&P.

As to problems in the Western markets, again, exposures are manageable. “On average, banks we rate in GCC had exposure to the US of 4.6 per cent of assets and 2.3 per cent of liabilities at year-end 2022,” says Damak.

“Generally, GCC banks would have limited lending activity in the US and most of their assets there would be in high-credit quality instruments or with the Federal Reserve. The exposure to Europe tends to be limited as well, except for banks that have a presence in some European countries like France or the UK. Most of the activity in these jurisdictions tends to be linked to home countries or generally made of high-quality exposures.”

This will not end SNB shareholder anxiety that the bank’s raison d’etre – supporting domestic projects related to Vision 2030 – had been sidelined in the pursuit of equity positions in global blue chips.

Qatari contagion

Similar questions will be asked in Qatar, where the QIA provided ballast for the Swiss bank’s balance sheet in 2021, when it issued $2bn in convertible notes. The Qatari wealth fund will be reviewing its bank holdings and stress-testing its wider portfolio.

Others will do the same. “Gulf sovereign wealth funds will probably review their asset allocations, regardless of this current crisis,” one Gulf-based economist tells MEED. “The reality is that their role is changing. They were, in the past, more opportunistic investors. Today they are becoming strategic vehicles.”

If Gulf funds like QIA will no longer serve as the global financial system’s white knights – as they proved in the 2008 financial crisis – this may prompt a reconfiguration of investment strategies.

There will be a steep learning curve, says one Gulf-based economist – on both sides.

Governance implications

In light of the growing financial strength of the Gulf institutions come new responsibilities and governance requirements, reflecting the dawning reality that Gulf institutions are growing into increasingly globally systemically significant investors or sources of capital.

“They need to act accordingly,” says the economist. “Not just from the global governance perspective, but also from the perspective of protecting their assets.”

Gulf institutions’ transformation into opportunistic investors was well-timed when liquidity was required at short notice.

“The money centres of the world turned to one of the biggest honey pots they could identify. And, of course, some of the old reservations were conveniently parked aside, at least for the time being,” says the economist.

The challenge for the Gulf institutions was the lack of deep experience or institutional frameworks needed to underpin those initial investments.

“Opportunities arose, these countries chose to take them and they got lucky because they helped stabilise the global financial system, and they helped protect the reputation of these institutions. And no major mistakes were made. But that initial opportunistic approach will no longer fly,” says the economist.

Gulf sector outlook

The Credit Suisse saga has also prompted much ruminating in Western media to the extent that Western institutions may cast a more wary eye in future over their Gulf counterparts.

But absent new funding sources, the GCC's appeal may prove irresistible to them. After all, says the economist, beggars can’t be choosers.

“What is the alternative to resorting to institutions such as the Gulf sovereign funds? They’re not going to go to China, that’s for sure. The only real alternative is to get some sort of a backstop from national central banks. And that is pretty much as close as you can get to a moral hazard,” he says.

The broader global picture is evolving. How Gulf institutions related to primarily Western institutions will also be influenced by the change in the GCC states’ foreign policy.

Gulf governments are increasingly cognisant of the need for a balanced, multi-directional foreign policy. And that is something they will also want to reflect in their wealth funds and banks’ investment behaviour.

The next year should provide an insight into how the post-Credit Suisse modus vivendi will play out.

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James Gavin

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    The past 12 months have tested whether a technocratic Jordanian government installed to address the country’s creeping fiscal crisis can hold the line while the region around it convulses.

    On that narrow measure, it has largely succeeded, though more by adhering to an inherited programme than by breaking new ground. The question of whether Amman can move beyond budget discipline into structural reform remains open.

    The most consequential developments of the past year have spoken more to Jordan’s dependence on external capital than to any decisive shift in domestic policy.

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    When King Abdullah II appointed Jafar Hassan prime minister in September 2024, he installed a figure who had served as his chief of staff and, earlier, as deputy prime minister for economic affairs, with a specific brief to cut public debt. The choice put fiscal credibility in the chair.

    Hassan inherited a wide fiscal gap. The overall government deficit stood at 7.3% of GDP in 2024, with gross public debt at 82% of GDP and the IMF programme targeting a reduction below 80% by 2028. Growth came in at 2.6% in 2024 and is projected at 2.7% in both 2025 and 2026 – providing little support to consolidation efforts.

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    Much of that 2024 performance, though, preceded Hassan’s September appointment, and the consolidation is, in that sense, the programme’s trajectory rather than a break attributable to the new government. A March 2026 directive curbing government vehicle use and freezing official foreign travel – tightened as the regional conflict strained the budget and extended through year-end – speaks to the active restraint being applied.

    The discipline is real, but it is the plumbing of the public finances – revenue, tariffs, arrears, loss containment – not the structural reform of the economy.

    The harder reforms

    The reforms that would lift growth and create jobs have gone virtually untouched. Labour market flexibility, stronger competition, and higher female and youth participation have recurred as priorities through successive IMF reviews but have run up against public-sector privilege and entrenched interests.

    The resulting stagnation shows in the numbers. Growth, projected at 2.7% through 2026, sits well short of what the Economic Modernisation Vision demands: a doubling of GDP by 2033 – implying sustained growth at roughly twice the current rate – in order to create one million jobs.

    The labour market is where the failure is sharpest, and where a narrower deficit changes nothing. Unemployment among Jordanians fell to 21.2% in the fourth quarter of 2025, the lowest since early 2020, but barely changed from 21.4% the previous quarter.

    Within that is a widening gender split: male unemployment fell a full point year on year to 17.2%, while among Jordanian women it rose to 34.8%, up 2.6 points. The modernisation plan promises the opposite – a doubling of female labour force participation from 14% to 28% by 2033, from a base among the lowest in the world.

    The distance between that participation target and the worsening female jobless rate illustrates how far the structural agenda still has to travel.

    Gulf capital and the Aqaba corridor

    With domestic reform slow, Amman leans on external capital to meet its infrastructure needs and stimulate the economy – though even that is faltering. Foreign direct investment ran at $1.3bn in the first three quarters of 2024, or 3.3% of GDP, down from $1.6bn a year earlier, and eased further through 2025.

    The most strategically significant deal of 2026 binds Jordan to a bet on regional logistics: the April signing with the UAE of a $2.3bn agreement to build the 360-kilometre Aqaba Port Railway, structured as a 50/50 joint venture.

    The rail project was first signed in September 2024 and sits within a broader $5.5bn investment framework agreed in 2023. MEED understands that the first-section construction contract is now being finalised and second-section bids are under evaluation, with financial close expected in early 2027.

    The Jordanian half is held by the Jordan Phosphate Mines Company, Arab Potash, the Government Investments Management Company and the Social Security Investment Fund. On the UAE side are Abu Dhabi sovereign investment platform L’Imad Holding, with Etihad Rail as the venture’s executing arm.

    The line will carry around 16 million tonnes of freight a year – some 13 million tonnes of phosphate and 2.6 million tonnes of potash – from the mines at Shidiya and Ghor Al-Safi to Aqaba’s terminals.

    The corridor is designed to extend north from Aqaba toward Amman, Syria and Turkey, and south to Saudi Arabia, positioning Aqaba – Jordan’s sole port – as a Red Sea logistics node at a time of acute concern over supply-chain chokepoints.

    For the UAE, the northward reach is the point. Abu Dhabi has moved over the past year to control Syria’s Mediterranean coast – DP World took a 30-year, $800m concession at Tartus; AD Ports took a stake in the container terminal at Latakia – and a rail line running from the Red Sea towards the Syrian border would knit those positions into a corridor from the Gulf to the Mediterranean. For Jordan, it is inward investment, lower export costs and a potential jobs source.

    Dependence on external finance is a standing caveat, however. Jordanian projects have stalled at this stage before, conflict or no conflict: the estimated $2.6bn expansion of the refinery at Zarqa, 25 kilometres northeast of the capital, has been stuck over financing since bids were received in 2021.

    The planned National Water Carrier desalination scheme – targeting financial close in July 2026 at a capital cost estimated at $4.3bn – is the bellwether to watch. If that moves on timeline or terms, the rail scheme may well follow.

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    The next two years point to continued consolidation under the IMF programme, Gulf-backed infrastructure edging towards financial close and growth holding near 3% at best.

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