LONDON: Qatari banks are the “most vulnerable” in the Gulf region due to the risk of a deterioration in the quality of their assets, according to a report by ratings agency S&P Global.
Excluding Qatar National Bank, the loan books of the rest of the Gulf country’s banking sector faces increasing pressure from the continued boycott imposed by other Gulf states, coupled with a drop in real estate prices and hotel occupancy rates.
“We see an important correlation between any potential escalation or de-escalation of the boycott measures and deterioration or stabilization of Qatari banks’ asset quality,” the report published on Monday said.
S&P’s report also noted the risks posed by Gulf banks’ international operations, specifically the sector’s exposure to Turkey.
A number of the region’s banks have stakes in Turkish institutions, and have been left exposed to the recent sharp deterioration in the Turkish lira, and the “lackluster” economic performance of the country.
“Those GCC banks with exposures in the country will see some impact on their asset quality indicators,” the report read, noting that the risk is limited to just a few institutions with some of them equipped with the “financial muscle” to absorb the risk.
The overall financial profile of GCC banks should remain stable in 2019, S&P Global forecast, with profitability likely to “stabilize” as banks benefit from higher interest rates, in line with the higher US Federal Reserve rates.
Banks’ fortunes will also be buoyed by the increase in oil prices seen this year and anticipated economic growth in the region.
S&P forecast that oil prices will stabilize at $65 per barrel in 2019 and $60 by 2020. It estimated that growth will reach an average of 2.8 percent in 2019 for the six GCC countries.
Commenting on the report’s findings, Ehsan Khoman, Dubai-based head of regional research and strategy at MUFG Bank, said that there could be a “mild” increase in non-performing loans in the region, particularly in certain sectors.
“Following the challenging operating environment in recent years owing to weaker economic activity across the GCC, the loan performance of regional financial institutions has been subdued,” he said.
“In this context, non-performing loans may edge up, albeit mildly, across the region with sectors sensitive to fiscal consolidation through spending rationalization, such as real estate and construction feeling the pinch more noticeably.”
He tempered his comments, noting that the region’s banks are now better equipped to deal with the risks of deteriorating assets.
“The introduction of a number of regulatory frameworks, such as credit bureaus and credit-management tools, could improve GCC financial institutions’ risk controls and provisioning levels,” he said.
Khoman also sees Gulf banks benefiting from an improving business environment in the next year.
“GCC financial institutions are likely to benefit from continued benign deposit growth in 2019, owing to higher government deposits stemming from both higher oil receipts, as well as their continuous strategy of tapping international markets to fund their investment programs and fiscal deficits,” he said.
“Following the challenging period of lower for longer oil prices between mid-2014 and mid-2017, the intense funding pressures for GCC financial institutions has been broadly lifted. In-turn, with oil prices hovering near four year highs at the current juncture, domestic liquidity within the GCC banking system has been significantly restored.”
Qatar banks ‘most vulnerable’ in region, says S&P
Qatar banks ‘most vulnerable’ in region, says S&P
- Excluding Qatar National Bank, the loan books of the rest of the Gulf country’s banking sector faces increasing pressure from the continued boycott imposed by other Gulf states
- S&P’s report also noted the risks posed by Gulf banks’ international operations, specifically the sector’s exposure to Turkey
Trade, investment vital for emerging markets, says Saudi economy minister
RIYADH: Trade and investment are essential drivers for the continued growth of emerging market economies, according to Saudi Arabia’s Minister of Economy and Planning Faisal Alibrahim.
Speaking at the opening of the second edition of the AlUla Conference for Emerging Market Economies, Alibrahim addressed a panel titled “Paper Session 1: Resettling Global Trade,” highlighting the importance of building resilient economies to withstand ongoing global challenges.
“Global trade is not coming to an end. Trade and investment are still central and crucial for a lot of economies, especially emerging market economies, and as such they will always pursue for trade to continue to flow,” Alibrahim said.
“We talked about re-allocation and I think that’s very important. But today, what we were used to, which is a rules-based market system, this is becoming under strain and then with this strain, we’re seeing that resilience is making a difference. Countries that are built or designed to be more resilient with institutional capabilities could fare better,” he added.
Alibrahim also noted that while advanced economies benefit from buffers and policy space, allowing them to better weather economic strains, emerging markets face more pressure to adapt swiftly.
“However, emerging market economies can’t have the same flexibility and it will be more of an imperative for them, a stronger imperative for them to adapt,” Alibrahim said.
“As reallocation becomes the norm that we’re seeing today, we will see that countries will be exposed; those who know how to adapt versus those who can’t adapt,” he continued.
On the topic of US-China trade relations, the minister emphasized that these tensions would not lead to a reduction in global trade but would prompt ongoing reallocation that countries must adjust to.
“We shouldn’t view these, I’d say, moments of pressure as inherent failures. These are actually signs that there’s misalignment between institutions and a continuously evolving economy. Sometimes, the economy, the global economy, evolves at a slower pace and sometimes it surprises us,” Alibrahim said.
“Dealing with this re-allocation is not just about preserving a fixed notion of stability that gives us the illusion of control, it is about day-to-day disruption some people call it innovative policy making that allows us to really preempt these changes and be ready for it,” he added.
The minister further stressed that countries with strong institutional frameworks would be better positioned to navigate these challenges.
“This requirement will be a test on institutional delivery and how countries that have invested institutional capabilities, institutional setups will witness better outcomes because they’re ready for it,” Alibrahim concluded.
Also participating in the panel, Federico Sturzenegger, Argentina’s minister of deregulation and state transformation, shared insights into the shifting landscape of US-China trade.
“Actually, when I read the numbers, even as a kind of uninformed policymaker, I was not aware of this, it got from 22 percent of US imports to 8 percent and this has happened over the last 10 years,” Sturzenegger said.
Eyob Tekalign, governor of the National Bank of Ethiopia, also spoke on Ethiopia’s efforts to address long-standing macroeconomic distortions through reforms in collaboration with the International Monetary Fund.
“Macro reforms actually is not anti growth. Because if we take this context, what we saw is, everything that needs to go up is going up; everything that needs to go down is going down. We’ve seen a significant reduction in inflation from above 30 percent to single digits, 9.7 percent this December,” Tekalign said.
“If we want to see, you know, significant benefit from trade that agility, that regional readiness is absolutely critical,” he added.
The Saudi Ministry of Finance and the IMF launched the second edition of the annual AlUla Conference for Emerging Market Economies, bringing together economic leaders, finance ministers, central bank governors, and experts from around the world.
This year’s conference, held on Feb. 8-9, focuses on the ongoing transformations in the global economy and the challenges and opportunities they present for emerging markets, particularly in trade, monetary and financial systems, and macroeconomic policies.
