Saudi banking sector’s monthly profits surge by 16%: Report

The banking sector is benefiting from repricing of assets given the higher benchmark rates on a year-on-year basis and is also seeing non-performing loans (NPL) concerns alleviate due to the improved liquidity situation and government payments. (Reuters)
Updated 07 March 2017
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Saudi banking sector’s monthly profits surge by 16%: Report

JEDDAH: The Saudi banking sector’s aggregate monthly profit recovered in January 2017 after the steep year-end decline in December, said a report issued
by Al-Rajhi Capital.
Analysts at Al-Rajhi said that the sector is benefiting from repricing of assets given the higher benchmark rates on a year-on-year basis and is also seeing non-performing loans (NPL) concerns alleviate due to the improved liquidity situation and government payments.
Nevertheless, they said, credit growth to the private sector is expected to remain subdued after growing at the slowest annual pace in 7 years during 2016.
Citing the Saudi Arabian Monetary Agency’s (SAMA) monthly data the report said that aggregate banking sector profit surged 16 percent year-on-year in January to reach SR4.35 billion ($1.16 billion), the highest monthly profit ever reported. Owing to the continued fall in the prices of food and beverages and the high base effect of fuel and electricity prices in January 2016, the report said that the economy also witnessed deflation for the first time in more than 10 years in January 2017.
However, analysts believe that overall inflation is expected to pick up during the second half of the year following the expected revision in fuel and utility prices. Consumption patterns remain weak on a year-on-year basis though it has improved on a month-on-month basis. Saudi crude production fell by more than what was expected after the Organization of the Petroleum Exporting Countries’ (OPEC) deal effective January 2017 signaling oil markets about the Kingdom’s commitment to the deal and to probably ease market concerns about compliance at an aggregate level. Saudi non-oil PMI data indicated that manufacturing activity accelerated in the month of January.
Non-oil private sector’s Purchasing Managers’ Index (PMI) reached the highest level in 17 months, rising to 56.7 in January 2017, from 55.5 in December 2016, supported by a rise in output and new business, the report said. Banks’ claims on the private sector rose at the slowest pace since February 2010, by 1.8 percent year-on-year in January 2017, while deposits grew marginally in the same month.
Saudi Arabia’s foreign reserve assets in January 2017 declined at the slowest yearly pace in 15 months. The government is planning another round of international bond sales, which may help in reducing further drawdown in foreign assets. Saudi international bond yields with five- and 10-year maturities dropped on a monthly basis to 2.604 percent and 3.589 percent respectively in February. On the equity front, the Tadawul All Share Index (TASI) declined 1.8 percent month-on-month in February 2017, versus a monthly fall of 1.5 percent in January 2017.


Another surprise fall in UK inflation muddies Bank of England rates message

Updated 3 min 11 sec ago
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Another surprise fall in UK inflation muddies Bank of England rates message

LONDON: British inflation fell unexpectedly in April, according to figures on Wednesday that added to doubts about when the Bank of England will raise interest rates again and pushed sterling to its lowest level against the dollar this year.
Consumer price inflation cooled to 2.4 percent last month, its weakest increase since March 2017, and down from 2.5 percent this March.
The figure was below economists’ average expectation in a Reuters poll for it to hold steady at 2.5 percent and represented the second surprise fall in a row after a drop in March’s figures. “It’s a conundrum for the Bank of England which has struggled to read the direction of price changes recently,” Ed Monk, associate director for personal investing at fund manager Fidelity International, said.
“With inflation trending lower, it only makes it harder for the Bank of England to raise rates.” Investors were now pricing in a one-in-three chance of a BoE rate hike in August — the next time it updates its forecasts on the economy — down from 50/50 before Tuesday’s data.
High inflation, caused by the pound’s drop after the 2016 Brexit vote, squeezed British consumers through last year, and although it has receded from its December peak of 3.1 percent, the BoE is keeping a close eye on price pressures.
PIPELINE PRESSURE
Wednesday’s data pointed to some signs of inflation pressure still in the pipeline. Prices of goods leaving British factories increased at a faster rate than expected last month. And while consumer price inflation cooled again, the timing of the Easter holidays and their impact on air fare prices was a big contributor.
On Tuesday Bank of England Governor Mark Carney cited a new sugar tax on soft drinks, as well as higher utility bills and petrol prices, as reasons why inflation “probably tips up a bit” in the coming months before resuming a decline. The ONS said soft drink prices increased sharply over the last couple of months but the overall impact on inflation was minimal.
The latest data on prices in British factories, which eventually feed through onto the high street, were stronger than anticipated. Manufacturers increased the prices they charged by 2.7 percent year-on-year, matching March’s increase. Economists had expected a fall to 2.3 percent. Among manufacturers, the cost of raw materials — many of them imported such as oil — was 5.3 percent higher than in April 2017, up sharply from an increase of 4.4 percent in March and suggesting a long run of weakening price growth has ended.
A surprise drop in consumer price inflation in March, along weak economic growth figures for early 2018, had called into question whether the BoE would raise interest rates more than once before the end of the year.
Earlier this month it refrained from an interest rate hike that had at one point been widely expected. The BoE’s latest forecasts show inflation dropping to 2.1 percent in a year’s time, and returning to its 2.0 percent target a year later — but only if interest rates rise by 25 basis points about three times over three years.
The latest Reuters poll of economists suggests the BoE is most likely to raise interest rates at its August meeting.