International ratings agency Fitch said on Tuesday that the outlook for major British banks was "unaffected" by their exposure to the Middle East following Dubai's debt woes.
However Fitch said HSBC and Standard Chartered, the two British banks most active in the Middle East, would be the lenders in Britain most exposed to any broader economic fallout across the region.
Fitch announced the news in a statement headlined "UK Major Bank Ratings Likely Unaffected By Middle East Exposures", amid market concerns about potential losses linked to the Dubai debt crisis.
"The ratings of major UK-domiciled banking groups, including HSBC Holdings plc, The Royal Bank of Scotland Group plc, Lloyds Banking Group plc, Barclays Bank plc and Standard Chartered plc, are not currently expected to be affected purely by their exposures to the Middle East," Fitch said in a statement.
"HSBC Holdings plc and Standard Chartered plc are the UK-domiciled banks that are most active in the Middle East and would be the UK major banks most exposed to broader economic or market fallout in the region, should it occur."
Share prices of British banks have taken a beating in recent days from the Dubai crisis, amid widespread press reports that the sector has a total exposure of about 30 billion dollars to Dubai World.
However, Fitch on Tuesday said that global banking giant HSBC did not face a large exposure to the Middle East region, in the wake of the Dubai crisis.
"Overall, HSBC's exposures to the region are not considered by Fitch to be material in the context of the group's solid capitalisation, conservatively structured and funded balance sheet, its sound earnings generation and its strong liquidity.
"HSBC's Middle Eastern operations are theoretically capable of absorbing a large annual loss rate of around ten percent on UAE exposures before the region turns loss-making."
Fitch warned that emerging markets bank Standard Chartered had greater risk of ratings action over the issue.
"Standard Chartered's relative exposure to the Middle East is greater than HSBC's and its ratings would be more at risk than HSBC's if the problems in Dubai were to escalate or spread more significantly," Fitch said.
"However, the banking group comes from a position of relative strength, having comfortably weathered the global financial crisis to-date, having bolstered its capitalisation in the third quarter and in light of a conservatively structured, funded and liquid balance sheet."
The Dubai government had rocked global financial markets last Wednesday when it announced that it wanted a moratorium on debt repayments for its mighty Dubai World conglomerate until at least May next year.
Fitch noted on Tuesday that no London-listed banks had made official statements regarding developments in Dubai.
"Fitch notes that none of the major UK banks has deemed it necessary to make formal public announcements about their exposures to the Dubai World companies in debt standstill discussions," it said.
"Fitch does not expect any UK banking group's exposure to these companies to be, in itself, of sufficient size to affect its ratings."
Copyright 2009 AFP European Edition
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