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

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

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

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.”


Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades
Updated 12 sec ago

Global shares, oil prices falter as US stimulus buzz fades

Global shares, oil prices falter as US stimulus buzz fades

LONDON: Global shares stumbled on Friday as hopes of a fiscal boost from a $1.9 trillion US stimulus plan were smothered by the prospect of stricter lockdowns in France and Germany and a resurgence of COVID-19 cases in China.
European stocks followed Asian markets lower, with the pan-European STOXX 600 down 0.8 percent and London’s FTSE 100 0.8 percent weaker, with the latter clobbered by data showing Britain’s economy shrank in November for the first time since the initial COVID-19 lockdown last spring.
The MSCI world equity index, which tracks shares in 49 countries, was 0.3 percent lower. S&P 500 e-mini futures shed 0.3 percent to 3,779.
Oil prices, which had risen on a weak dollar and strong Chinese import data, dropped as COVID-19 concerns in China hit sentiment.
Brent was down $1.33, or 2.3 percent, after gaining 0.6 percent on Thursday. US West Texas Intermediate crude was down $1.17, or 2.1 percent at $52.44 a barrel, having risen more than 1 percent the previous session.
Brent and US crude were heading for their first weekly declines in three weeks.
Spot gold rose 0.1 percent to $1,847.00 per ounce.
While oil producers are facing unparalleled challenges balancing supply and demand equations with calculus involving vaccine rollouts versus lockdowns, financial contracts have been boosted by strong equities and a weaker dollar, which makes crude cheaper, along with strong Chinese demand.
“The recent resurgence in coronavirus infections, appearance of new variants, delayed vaccine rollouts and renewed lockdown measures in most major OECD economies has clouded the economic and demand recovery,” said Stephen Brennock of oil broker PVM.
“Simply put, near-term demand expectations aren’t too promising.”
Earlier on Friday, an Asian regional share index had edged near record highs after US President-elect Joe Biden proposed a $1.9 trillion stimulus plan to jump-start the world’s largest economy and accelerate its response to the coronavirus.
In prime time remarks on Thursday, Biden outlined a proposal that includes $415 billion aimed at the COVID-19 response, some $1 trillion in direct relief to households, and roughly $440 billion for small businesses and communities hard hit by the pandemic.
But that initial boost later faded as risk appetite waned, lifting bond prices and the dollar, and hitting equities.
“People are saying it’s a big number but markets are almost acting like its a disappointment,” said James Athey, investment director at Aberdeen Standard Investments.
“I think maybe the market was pricing an additional $2,000 cheque going to the US population, but what’s being proposed is a top-up of $1,400 to take the total to $2,000 because $600 has already been agreed.”
Investors also digested the prospect of rising taxes to pay for the plan.
“The concern is what it’s going to mean from a tax stand point,” said Tim Ghriskey, chief investment strategist at Inverness Counsel in New York.
“Spending is easy to do but the question is how are you going to pay for it? Markets often ignore politics but they don’t often ignore taxes.”
Biden’s comments came after US Federal Reserve Chair Jerome Powell struck a dovish tone in comments at a virtual symposium with Princeton University.
Powell said the US central bank is not raising interest rates anytime soon and rejected suggestions the Fed might start reducing its bond purchases in the near term.
Investor concerns over the prospects for a global economic recovery were raised after France strengthened its border controls and brought forward its night curfew by two hours to 6 p.m. for at least two weeks to try to slow the spread of infections.
German Chancellor Angela Merkel called for “very fast action” to counter the spread of variants of the coronavirus.
Chinese blue chips eased 0.2 percent, snapping a four-week winning streak, after the country on Friday reported the highest number of new COVID-19 cases in more than 10 months.
US earnings season kicked into full swing with results from JPMorgan, Citigroup and Wells Fargo.
JPMorgan Chase reported a much better-than-expected 42 percent jump in fourth-quarter profit on Friday, driven by the release of some of the reserves it had built up against coronavirus-driven loan losses.
Investors will be looking to see if banks are starting to take down credit reserves, resume buybacks, and provide guidance that shows the economy is improving, said Thomas Hayes, chairman of Great Hill Capital in New York.
In the currency market, the US dollar rose.
The dollar index was at 90.407 versus a basket of currencies, up 0.2 percent on the day.
It was on track for a weekly gain of around 0.4 percent, making this its strongest week since November.
Against the stronger dollar, the euro was down 0.2 percent at $1.21325.
US yields stepped back as risk appetite waned. Benchmark 10-year Treasury notes yielded 1.1039 percent, down from a US close of 1.129 percent on Thursday, while the 30-year yield dipped to 1.8451 percent from 1.874 percent.
In Europe, Italy’s bond market was poised to end the week calmer, as 10-year bond yields were down 2 basis points at 0.59 percent.
Italian Prime Minister Giuseppe Conte resisted calls to resign on Thursday after a junior coalition party led by former premier Matteo Renzi pulled out of the government on Wednesday and stripped it of its majority.