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

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.

Chinese smartphone maker Xiaomi lowers target as it kicks off IPO

Updated 42 min ago

Chinese smartphone maker Xiaomi lowers target as it kicks off IPO

HONG KONG: Chinese smartphone maker Xiaomi kicked off its initial public offering Thursday but the firm is likely to pull in about $6.1 billion, far less than originally expected, with investors having mixed views about its main business.
Xiaomi had hoped to raise $10 billion with the Hong Kong IPO, making it the biggest since Alibaba’s $25 billion New York debut in 2014 and valuing the company at about $100 billion.
However, the firm is offering 2.18 billion shares at HK$17-HK$22 apiece, according to Bloomberg News, which values it at about $53.9-$69.8 billion.
Xiaomi had hoped to be the first company to list shares in Hong Kong at the same time as launching new Chinese Depository Receipts (CDRs) in Shanghai under new rules announced in April by mainland authorities to open up markets in the world’s number two economy.
But on Tuesday it put off its decision on listing the CDRs until it completes its IPO in Hong Kong. The China Securities Regulatory Commission said it has canceled a listing review originally scheduled for June 19.
This delay, as well as differing market views about Xiaomi’s business model, were also among reasons for the lower valuation.
CEO Lei Jun claimed it was an Internet services company making money via online games and advertisements despite 70 percent of its revenues coming from selling hardware, particularly smartphones.
The firm, which mainly sells cheap but high-quality smartphones in China, is looking to push into Europe — recently opening its first flagship store in Paris — as the home market reaches saturation point.
China Mobile and US wireless-chip giant Qualcomm are among the cornerstone investors and it is expected to list on July 9.
Chinese authorities devised the CDR program, under which homegrown companies listed abroad can simultaneously list at home, after watching technology heavyweights Alibaba and Baidu list on Wall Street.
The objectives of the plan include helping to develop China’s still relatively immature and volatile share markets while allowing domestic investors to invest in the country’s big tech champions.
Alibaba and Hong Kong-listed Tencent have expressed an interest in the plan.
Xiaomi shipped 28 million smartphones worldwide from January to March, an 88-percent surge year-on-year.
That was fourth in the world after Samsung, Apple and China’s Huawei, according to figures from the International Data Corporation.