Qatari banks exposed to new banking bad loan rules

Qatari lenders are particularly exposed to new accounting rules aimed at providing for the possibility of bad loans according to a new report. (AFP)
Updated 29 May 2018
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Qatari banks exposed to new banking bad loan rules

  • New rules address bad loan provisions
  • Boycott hits real estate and banking sectors

Qatari banks have been hardest hit by new accounting rules aimed  at ensuring Gulf lenders have put enough aside to cover potentially bad loans, according to a new report.

Gulf lenders have shown “resilience” to the new accounting rules introduced at the start of the year, according to S&P Global.

The agency said that the impact of the regulation on the region’s banks “appears manageable” due to the quality of investments held by the financial institutions and their limited trading activities.

But it said that Qatar’s banks have been the most affected by the rules, due in part to the impact of the ongoing boycott of the Gulf state by several Arab countries.

“In particular the pressure on Qatar’s real estate and hospitality sectors, are continuing to exacerbate banks’ provisioning needs, in our view,” the report said.

While the average additional provision is around 1.5 percent of total loans, the agency noted that there are significant differences between Qatari banks where the minimum increase was 0.5 percent and maximum was 2.8 percent.

Due to a combination of tighter regulation and a weak operating environment, S&P Global predicted that most of the region’s banks will continue to avoid high-risk transactions which could limit loan growth.

The cost of risk will also continue to increase, the ratings agency forecasted.

“Most banks will likely continue prioritizing loan quality over quantity and shy away from lucrative but higher-risk exposures,” the report said.

The rules — known as IFRS 9 — were introduced worldwide following criticism of the previous system where banks only had to set aside provisions once they incurred losses. This led to delays in recognizing credit losses during the global financial crisis.

Under the new regulations, banks need to put aside provisions in advance, based on expectations of losses.

On average, GCC banks rated by S&P Global needed to put aside an additional provision of 1.1 percent of the banks’ total loans, or 5.3 percent of their total adjusted capital.

In the UAE, declining real estate prices have pushed up the country’s provisioning needs, the agency said. Banks have also put provisions aside on legacy loans.

In Saudi Arabia, S&P Global said that the country’s “still muted” economic performance coupled with problems with contractors and the real estate sector led to higher average additional provisions among the country’s banks.

Kuwaiti banks were the least vulnerable to the impact of the rules for the immediate future, the rating agency said.

This is mainly due to the banks having not finalized with the country’s regulator how they will calculate the impact of the extra provisioning on their loan portfolio. S&P Global estimated that overall additional provisions will be around 0.7 percent of total loans on average.


Foreign investors hope India dials back policy shocks after Modi win

Updated 24 May 2019
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Foreign investors hope India dials back policy shocks after Modi win

  • Modi’s pro-business image and India’s youthful population have lured foreign investors
  • After Modi’s win, about a dozen officials of foreign companies in India and their advisers said they hoped he would ease his stance and dilute some of the policies

NEW DELHI: Foreign companies in India have welcomed Prime Minister Narendra Modi’s election victory for the political stability it brings, but now they need to see him soften a protectionist stance adopted in the past year.
Modi’s pro-business image and India’s youthful population have lured foreign investors, with US firms such as Amazon.com , Walmart and Mastercard committing billions of dollars in investments and ramping up hiring.
India is also the biggest market by users for firms such as Facebook Inc, and its subsidiary, WhatsApp.
But from around 2017, critics say, the Hindu nationalist leader took a harder, protectionist line on sectors such as e-commerce and technology, crafting some policies that appeared to aim at whipping up patriotic fervor ahead of elections.

Opinion

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“I hope he’s now back to wooing businesses,” said Prasanto Roy, a technology policy analyst based in New Delhi, who advises global tech firms.
“Global firms remain deeply concerned about the lack of policy stability or predictability, this has sent a worrying message to global investors.”
India stuck to its policies despite protests and aggressive lobbying by the United States government, US-India trade bodies and companies themselves.
Small hurdles
Modi was set to hold talks on Friday to form a new cabinet after election panel data showed his Bharatiya Janata Party had won 302 of the 542 seats at stake and was leading in one more, up from the 282 it won in 2014.
After Modi’s win, about a dozen officials of foreign companies in India and their advisers told Reuters they hoped he would ease his stance and dilute some of the policies.
Other investors hope the government will avoid sudden policy changes on investment and regulation that catch them off guard and prove very costly, urging instead industry-wide consultation that permits time to prepare.
Protectionism concerns “are small hurdles you have to go through,” however, said Prem Watsa, the chairman of Canadian diversified investment firm Fairfax Financial, which has investments of $5 billion in India.
“There will be more business-friendly policies and more private enterprise coming into India,” he told Reuters in an interview.
Tech, healthcare and beyond
Among the firms looking for more friendly steps are global payments companies that had benefited since 2016 from Modi’s push for electronic payments instead of cash.
Last year, however, firms such as Mastercard and Visa were asked to store more of their data in India, to allow “unfettered supervisory access,” a change that prompted WhatsApp to delay plans for a payments service.
Modi’s government has also drafted a law to clamp similar stringent data norms on the entire sector.
But abrupt changes to rules on foreign investment in e-commerce stoked alarm at firms such as Amazon, which saw India operations disrupted briefly in February, and Walmart, just months after it invested $16 billion in India’s Flipkart.
Policy changes also hurt foreign players in the $5-billion medical device industry, such as Abbott Laboratories, Boston Scientific and Johnson & Johnson, following 2017 price caps on products such as heart stents and knee implants.
Modi’s government said the move aimed to help poor patients and curb profiteering, but the US government and lobby groups said it harmed innovation, profits and investment plans.
“If foreign companies see their future in this country on a long-term basis...they will have to look at the interests of the people,” Ashwani MaHajjan, an official of a nationalist group that pushed for some of the measures, told Reuters.
That view was echoed this week by two policymakers who said government policies will focus on strengthening India’s own companies, while providing foreign players with adequate opportunities for growth.
Such comments worry foreign executives who fear Modi is not about to change his protectionist stance in a hurry, with one offical of a US tech firm saying, “I’d rather be more worried than be optimistic.”