Islamic banks in GCC likely to outperform conventional counterparts: Report

Analysts at Moody’s said that Islamic banks perform better primarily as a result of their low funding costs, which reflect their reliance on largely stable current and savings account balances. (Reuters)
Updated 19 March 2017
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Islamic banks in GCC likely to outperform conventional counterparts: Report

JEDDAH: The profitability of Islamic banks in the Gulf Cooperation Council (GCC) is likely to outpace that of their conventional peers for the second consecutive year in 2017 on the back of stronger margins and the resilient cost of risk, said a report issued by Moody’s Investors Service.

According to the report, Islamic banks have become more profitable than their conventional counterparts in 2016 after trailing for five years.
“Islamic banks will be able to maintain their profitability in 2017, as lower funding costs will support their margins against a backdrop of rising interest rates, while improvements in their risk management and asset quality will further ease the pressure on their cost of risk,” said Nitish Bhojnagarwala, assistant vice president — analyst at Moody’s.
Analysts at Moody’s said that Islamic banks perform better primarily as a result of their low funding costs, which reflect their reliance on largely stable current and savings account balances. “Islamic banks also tend to have higher asset yields, given their focus on retail and the real estate-related lending,” the report said.
Moody’s expects that Islamic banks will retain a margin advantage of about 40 basis points over conventional banks in 2017. Islamic banks’ net profit margins are analogous to conventional banks’ net interest margins.
“The cost of risk for Islamic banks has converged with the conventional peers as they diversify away from real estate lending toward other sectors and tighten their risk management practices. In the past, higher impairment charges on loans and investments have dampened Islamic banks’ profitability,” said Bhojnagarwala.
“Conventional banks will continue to beat Islamic peers in terms of cost efficiency,” he added.
Islamic banks have a higher cost base because they are younger and more focused on retail customer segments. This means higher levels of investment in branch network expansion and technology. Conventional banks in the GCC, in contrast, have already established their branch networks.


French oil major Total’s Q1 profits lifted by record production

Updated 30 min 40 sec ago
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French oil major Total’s Q1 profits lifted by record production

  • Net adjusted profit came in at $2.9 billion, beating analysts’ forecast of $2.77 billion in the quarter
  • Total expects to exceed its 6 percent production target for 2018

PARIS: Record output and high oil prices helped French oil and gas major Total report a consensus-beating rise in net adjusted profit during the first three months of the year, with Total adding it would surpass its production target for 2018.
Total’s earnings echoed a similarly robust set of results from Royal Dutch Shell which also posted higher Q1 profits on Thursday.
Total produced 2.703 million barrels of oil equivalent per day (boe/d) in the first quarter, driven by ramp-ups and new acquisitions, up more than 5 percent compared to the same period in 2017, and above analysts’ estimates of 2.663 million boe/d.
It said the ramp-up of production from new projects such as Yamal LNG in Russia and Moho Nord in Congo, along with newly acquired assets, including Maersk Oil and Al-Shaheen in Qatar, had enabled it to reach record production during the quarter.
It marked Total’s highest output ever recorded in a quarter, surpassing a previous record of 2.66 million boe/d in 2003.
Net adjusted profit came in at $2.9 billion, beating analysts’ forecast of $2.77 billion in the quarter.
“Oil prices continued to rebound in the first quarter 2018,” said Total’s Chief Executive Officer Patrick Pouyanne in a statement.
“Brent rose to an average of $67 per barrel, supported by strong demand, OPEC-non-OPEC compliance and geopolitical tensions,” he also said.
“Cash flow after organic investments increased to $2.8 billion, up by more than 50 percent from a year ago, thanks to good operational performance and continued spending discipline,” added Pouyanne.
Total said it expected to exceed its 6 percent production target for 2018 thanks to the start-ups and ramp-ups of new projects, such as Kashagan in Kazakhstan, Kaombo in Angola and Ichthys in Australia, later in the year.
It said this would support its target of 5 percent per year on average output growth between 2016 and 2022, even though Total noted that the global environment remained volatile with persistent uncertainty around the evolution of global supply.
Total also said it would continue to exercise discipline on its cost base.
It maintained 2018 investments at $15-$17 billion, with an operating expense target of $5.5 per barrel of oil equivalent. It said cost reduction plans were ongoing, with an objective of over $4 billion in 2018.
Total said it will raise first quarter interim dividend by 3.2 percent, while Scrip shares issued in January for the second 2017 interim dividend were bought back to prevent dilution.
“In addition, the group bought back a further $300 million of shares to return to shareholders part of the benefit realized from higher oil prices,” Pouyanne said.
The company said in February that it planned to buy back up to $5 billion of stock over 2018-2020 to share the benefits of higher oil prices with investors.