Saudi banks to feel ‘impact of new mortgage regulations’ in long-term

Updated 27 February 2013
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Saudi banks to feel ‘impact of new mortgage regulations’ in long-term

Reviewing the partial regulations for the Saudi Mortgage Law published by Saudi Arabian Monetary Agency (SAMA), NCB Capital, described as the GCC’s major wealth manager and the Kingdom’s largest asset manager, believes that, while overall positive, the regulations will impact the banking sector only in the medium to long term, if at all.
“The regulation in its current form does not fully tackle issues related to foreclosures of properties and how Saudi banks are expected to participate in the suggested format stipulated in the laws published so far,” said Mahmood Akbar, equity research analyst at NCB Capital. “Indeed, we believe that some banks actually prefer the current framework (salary-assignments) where they have ownership of the property. Nonetheless, we expect short-term price gains in small-cap banking sector and real estate stocks.”
The final approved draft of three of the five laws forming the Real Estate and Financing Law published by SAMA relate to (1) Real Estate Financing (2) Financial Leasing (3) Supervision of Finance Companies. The laws related to foreclosures in case of non-payments, “The Execution Law,” and the “Registered Real Estate Mortgage Law,” however, are yet to be published.
“The focus is mostly on finance companies and there is limited reference to banks,” said Akbar. “Given the limited reference to commercial banks, coupled with the fact that the laws stipulate that the finance company can only engage in real estate financing, there is limited clarity on whether the laws will apply to commercial banks. This makes it possible, although still uncertain, that the aim of the regulation is to separate mortgage lending function from commercial banks, similar to separating the commercial banks from the securities business. The regulations did not tackle issues related specifically to the banking sector particularly with regards to risk weightings. If the banks need to create separate entities to deal with mortgage lending, the benefit from the proposed law will materialize only in the long-term.”
Financing and re-financing companies will be heavily regulated since SAMA has introduced a set of strict regulations to ensure the stability of the new sector and to protect borrowers. This includes, among others, promoting transparency of activities (Article six and 26, Real Estate Finance Law), preventing speculative real estate investments (Article 23 and 24 of the Real Estate Finance Law) and fair pricing (Article 20 of the Real Estate Finance Law). “We believe this is positive for the Kingdom as it fully tackles many of the issues facing the real estate market,” Akbar added.
A real estate refinancing company called The Saudi Real Estate Refinancing Company is expected to be formed by the Public Investment Fund and will have a paid-up capital of SR 5 billion. This new entity will purchase the mortgages from the real estate companies, securitize them and issue mortgage-backed securities. This will offer investors alternative channels for real estate exposure, which may ‘free up’ some of the undeveloped land owned by wealthy families.
“In our view, the law is part of a long-term vision and not to the short-term benefits of the corporate sector,” said Akbar. “While we believe the proposed law will have medium and long term benefits to the economy, we argue that this is unlikely to have an immediate positive impact either on real estate companies or banks. Indeed, we see the regulations as attempting to establish a stable, efficient and sustainable market for mortgages which should support Saudi’s long-term social reforms.”
Akbar added: “However, we believe the proposed law in its current form does not tackle a key underlying problem — lack of suitable and affordable housing. For example, one of the major banks in Saudi Arabia pointed out that it has more than 400,000 clients eligible (based on salary-assignment) for a mortgage but have yet to find a suitable property (this figure doubled from last year). Therefore, even if the process of mortgage lending was made easier through private property institutions (i.e. the ability of lenders to evict mortgage holders from homes in case of non-payment) middle class borrowers will find a limited supply of suitable housing.”
Akbar said: “In our review we do not factor in additional growth in our banks’ models to incorporate the proposed mortgage law. Indeed we believe the recent increase in consumer real estate financing is related to banks’ “chase for yields” rather than in anticipation of the regulatory changes. Given the recent decline in NIMs in the corporate segment, we see banks gradually changing the asset mix more towards the consumer finance segment and in particular real estate financing which would limit the decline in margins. The management of most banks we met recently indicated that they expect to see higher consumer lending growth in 2013 driven by real estate financing.”


Gulf airlines Emirates, Etihad, Qatar Airways seen flying under radar at Farnborough Airshow

Updated 15 July 2018
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Gulf airlines Emirates, Etihad, Qatar Airways seen flying under radar at Farnborough Airshow

  • Over 1,500 exhibitors and 100,000 trade visitors are expected to attend this week’s airshow
  • Farnborough and the Paris Airshow — held on alternate years — have accounted for around 30 percent of annual commercial business

LONDON: The aviation industry heads to the UK’s Farnborough International Airshow on Monday in rude health, with higher oil prices and a strong global economy leading to predictions of a large number of orders at the week-long show.
But this time around, significant orders from Gulf carriers such as Etihad, Emirates and Qatar Airways are unlikely to materialize, as the region’s carriers continue to take stock after a period of bruising losses.
Over 1,500 exhibitors and 100,000 trade visitors are expected to attend this week’s airshow, one of the most important events for the global aviation industry.
Farnborough and the Paris Airshow — held on alternate years — have accounted for around 30 percent of annual commercial business for manufacturers like Boeing and Airbus since 2012, according to aviation consultancy IBA Group.
Some $124 billion worth of orders and commitments were placed at the 2016 show, according to organizers.
The aviation industry is in rude health in 2018, with passenger numbers and load factors rising internationally thanks to global economic growth.
Plane makers bagged around 900 firm or provisional orders in Paris last year, the consultancy said. And while the international order backlog is high, a similar number of orders is expected next week on the back of recent rises in the price of oil.
“The trend between oil price and annualized orders has been uncannily strong,” said IBA’s Chief Executive Officer Stuart Hatcher in a report issued July 9.
“This is not surprising given that most orders have been placed for new fuel-efficient technology, but even with such large backlogs in play, orders continue to come in as oil rises.”
This time around however, the big three Gulf carriers — Etihad Airways, Emirates and Qatar Airways — are unlikely to feature too heavily among the big spenders next week, analysts predict.
Etihad Airways made headlines in Farnborough in 2008, when it made $20 billion worth of orders from Boeing and Airbus.
Fast forward 10 years though, and the Abu Dhabi carrier is in consolidation and restructuring mode, its international expansion plan on hold following the insolvency of its European partners Air Berlin and Alitalia.
After posting an annual loss of $1.5 billion for 2017 (albeit an improvement on the previous year), Etihad earlier this month announced a reorganization into seven business units to be accompanied by further job cuts, significantly scaling back its international ambitions.
The main deals the carrier is reportedly working on with manufacturers are attempted price reductions for previously placed orders.
“It’s not the done thing to cancel existing orders at airshows,” said Saj Ahmad, chief analyst at Strategic Aero Research.
Etihad did not respond to a request for comment.
John Strickland, director of JLS Consulting, said the other two big Gulf carriers were also unlikely to splash significant cash at Farnborough.
“It’s probable that any statements by Emirates and Qatar Airways will be more modest,” he told Arab News.
Dubai’s Emirates has fared better than its Abu Dhabi counterpart, reporting a $1.1 billion profit for the year ending March 2018.
Despite the airline’s continuing recovery, recent headline orders from both Boeing and Airbus are tempering the expectations for what will be announced at Farnborough.
“Emirates has placed recent orders for Boeing 787s and more Airbus A380s so large headline orders are unlikely,” said Strickland.
Emirates declined to comment.
Qatar Airways has been hit hard by the boycott of its home market by the Anti-Terror Quartet — Saudi Arabia, the UAE, Bahrain and Egypt — last year, with the group’s CEO Akbar Al-Baker admitting the airline is likely to report a large loss for the past year.
But the company has been in acquisition mode, acquiring a 9.6 percent stake in Cathay Pacific in November for $662 million, and has expanded a number of its routes in recent months.
“Qatar Airways may plump up for more (Boeing) 777Fs as it looks to build its freight capacity in the wake of the (boycott) to alleviate import pressures on goods and services,” Ahmad told Arab News.
IBA forecasts that aircraft leasing firms may dominate Farnborough orders, accounting for between 30 and 50 percent of orders.
Ahmad told Arab News that Dubai-based DAE Capital may be one of the firms preparing to place large orders, with rumors of 100 jets apiece for Airbus and Boeing.
DAE, Airbus and Boeing did not respond to requests for comment.