Qatar banks ‘most vulnerable’ in region, says S&P

The commercial district of Doha with a sparse scattering of newly-built towers in the early stages of the its expansion. (Shutterstock/File Photo)
Updated 01 October 2018
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Qatar banks ‘most vulnerable’ in region, says S&P

  • Excluding Qatar National Bank, the loan books of the rest of the Gulf country’s banking sector faces increasing pressure from the continued boycott imposed by other Gulf states
  • S&P’s report also noted the risks posed by Gulf banks’ international operations, specifically the sector’s exposure to Turkey

LONDON: Qatari banks are the “most vulnerable” in the Gulf region due to the risk of a deterioration in the quality of their assets, according to a report by ratings agency S&P Global.
Excluding Qatar National Bank, the loan books of the rest of the Gulf country’s banking sector faces increasing pressure from the continued boycott imposed by other Gulf states, coupled with a drop in real estate prices and hotel occupancy rates.
“We see an important correlation between any potential escalation or de-escalation of the boycott measures and deterioration or stabilization of Qatari banks’ asset quality,” the report published on Monday said.
S&P’s report also noted the risks posed by Gulf banks’ international operations, specifically the sector’s exposure to Turkey.
A number of the region’s banks have stakes in Turkish institutions, and have been left exposed to the recent sharp deterioration in the Turkish lira, and the “lackluster” economic performance of the country.
“Those GCC banks with exposures in the country will see some impact on their asset quality indicators,” the report read, noting that the risk is limited to just a few institutions with some of them equipped with the “financial muscle” to absorb the risk.
The overall financial profile of GCC banks should remain stable in 2019, S&P Global forecast, with profitability likely to “stabilize” as banks benefit from higher interest rates, in line with the higher US Federal Reserve rates.
Banks’ fortunes will also be buoyed by the increase in oil prices seen this year and anticipated economic growth in the region.
S&P forecast that oil prices will stabilize at $65 per barrel in 2019 and $60 by 2020. It estimated that growth will reach an average of 2.8 percent in 2019 for the six GCC countries.
Commenting on the report’s findings, Ehsan Khoman, Dubai-based head of regional research and strategy at MUFG Bank, said that there could be a “mild” increase in non-performing loans in the region, particularly in certain sectors.
“Following the challenging operating environment in recent years owing to weaker economic activity across the GCC, the loan performance of regional financial institutions has been subdued,” he said.
“In this context, non-performing loans may edge up, albeit mildly, across the region with sectors sensitive to fiscal consolidation through spending rationalization, such as real estate and construction feeling the pinch more noticeably.”
He tempered his comments, noting that the region’s banks are now better equipped to deal with the risks of deteriorating assets.
“The introduction of a number of regulatory frameworks, such as credit bureaus and credit-management tools, could improve GCC financial institutions’ risk controls and provisioning levels,” he said.
Khoman also sees Gulf banks benefiting from an improving business environment in the next year.
“GCC financial institutions are likely to benefit from continued benign deposit growth in 2019, owing to higher government deposits stemming from both higher oil receipts, as well as their continuous strategy of tapping international markets to fund their investment programs and fiscal deficits,” he said.
“Following the challenging period of lower for longer oil prices between mid-2014 and mid-2017, the intense funding pressures for GCC financial institutions has been broadly lifted. In-turn, with oil prices hovering near four year highs at the current juncture, domestic liquidity within the GCC banking system has been significantly restored.”


China’s Xiaomi swings to net profit in Q3 on robust sales in India, Europe

Updated 19 November 2018
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China’s Xiaomi swings to net profit in Q3 on robust sales in India, Europe

  • Profit for the three months through September reached $357.23 million
  • The firm has been adding new brands to its smartphone portfolio to target niche consumers

HONG KONG: Chinese smartphone maker Xiaomi Inc. said on Monday it swung to a net profit in the third quarter, beating analyst estimates, driven by robust sales in India and Europe.
Profit for the three months through September reached 2.48 billion yuan ($357.23 million), versus an 11 billion yuan loss in the same period a year earlier. That compared with a 1.92 billion yuan average of five analyst estimates compiled by Refinitiv Eikon.
Xiaomi also said operating profit sank 38.4 percent to 3.59 billion yuan in the third quarter. Revenue rose 49.1 percent to 50.85 billion yuan.
The mixed results come amid a slowdown in smartphone purchases both in China, where Xiaomi once was the top-selling handset brand, and overseas.
Nevertheless Xiaomi, along with fellow low-cost handset makers Oppo and Vivo, accounted for around a quarter of the global smartphone market in the first half of 2018, showed data from researcher IDC.
Xiaomi’s fastest-growing markets are India, where it has had success with its budget Redmi phone series, and Europe, where it entered in 2017 with launches in Russia and Spain. Earlier this month it released its flagship Mi 8 Pro device in Britain.
But to weather the global market slowdown, analysts said Xiaomi needs to expand to new markets and also sell more higher-priced devices with wider profit margins.
The firm has been adding new brands to its smartphone portfolio to target niche consumers. Concurrent with today’s earnings, it announced a partnership with Meitu Inc, a maker of a photo app popular with young women, to sell phones under its brand. Earlier this year it launched Black Shark, a phone targeted at gamers, and Poco, a value-for-money device aimed at India.
Mo Jia, who tracks China’s smartphone makers at research firm Canalys, said attempts to sell more expensive devices requires changing its brand perception.
“It’s still very hard for Xiaomi to change its perception of being a low-end device manufacturer as the majority of its smartphone shipments are the Redmi series.”
Xiaomi also aims to transform itself from a smartphone firm into a software company. As the firm prepared for its IPO, founder Lei Jun touted Internet services — namely advertisements placed on the firm’s in-house apps — as its future and key differentiator from other handset brands.
In the third quarter, Xiaomi’s smartphone division grew revenue by 36.1 percent while its Internet service division grew 85.5 percent. But phones made up 64.6 percent of total sales, while Internet services made up 9.3 percent.
The results are the second set released by Xiaomi since the smartphone maker raised $4.72 billion in an initial public offering (IPO) in June, valuing the firm at about $54 billion — around half of some earlier industry estimates of $100 billion.
Its shares have fallen roughly 20 percent since they started trading in July amid a broader Chinese stock market sell-off and concern about a slowdown in China’s tech industry.