Qatari banks face growing risks from real estate downturn, says Fitch

A view of Doha Bank Tower (R) in Doha, Qatar. (File/AFP)
Updated 16 May 2019

Qatari banks face growing risks from real estate downturn, says Fitch

  • Qatar has seen its rental prices slide by 20 percent over the past three years
  • Analysts expect these prices to fall further as a wave of projects tied to the tournament come online over the next three years

DOHA: Qatari banks face growing pressure from high exposure to the country’s sluggish real estate market, hit by oversupply tied to preparations for its 2022 World Cup, ratings agency Fitch said.
The tiny but wealthy Gulf state has seen its rental prices slide by 20 percent over the past three years. Analysts expect these prices to fall further as a wave of projects tied to the tournament come online over the next three years.
Qatar has had the added challenge of a diplomatic and trade boycott imposed by Saudi Arabia, the United Arab Emirates, Bahrain and Egypt since 2017. The move has hit tourism and dampened demand for real estate from foreign buyers.
The bloc accuses Qatar of supporting terrorism, which Doha denies. Qatar has since moved to liberalize its real estate sector, opening up new areas to foreign buying in a bid to boost demand.
While Qatari banks have largely bounced back from liquidity issues arising from the 2017 boycott, when around $30 billion in deposits left the system, Fitch said deteriorating real estate assets are now a “key risk.”
“Qatari banks’ concentrated exposure to the weakening domestic real estate market is an increasing risk to asset quality,” Fitch said, naming Doha Bank, Commercial Bank, and International Bank of Qatar as the most exposed.
“The real estate and hospitality sectors, already facing falling prices due to oversupply in preparation for the 2022 World Cup, have been further pressured by reduced tourism and occupancy rates resulting from the boycott of Qatar.”
Fitch said however that Qatari banks’ credit ratings would not be affected “as they are driven by our assumption of the authorities’ propensity and ability to provide support to the banks, if needed.”
Qatar injected about $40 billion into its banking system in the months after the boycott in order to boost liquidity.


Virus pressure tests Saudi Arabia reforms as Aramco has Forbes debut

Updated 28 May 2020

Virus pressure tests Saudi Arabia reforms as Aramco has Forbes debut

  • ‘In terms of profits, the Saudi companies have done well. We will see more companies rising in the next few years

RIYADH: Saudi companies such as oil giant Aramco are displaying resilience in the face of the coronavirus pandemic because of reforms introduced before its arrival, say analysts.

The world’s largest oil company has become emblematic of wider corporate reforms triggered by the Saudi Vision 2030 blueprint for social and economic change.

Saudi Aramco this month appeared in the top five of the Forbes Global 2000 list, which ranks the world’s 2000 largest companies.

It comes as the world’s most profitable company reported profits on $88.2 billion last year.

This year’s rankings arrive amid a global pandemic which has devastated the earnings of some companies, improved the position of others and tested the resilience of all.

It has also shone a spotlight on the ability of the the Kingdom’s top companies to withstand the twin shock of the COVID-19 lockdown and the collapse of oil prices.

Saudi Aramco debuted on the prestigious Forbes list after completing the world’s largest initial public offering last year.

The rankings are based on a combination of sales, profits, market capitalization and assets. Three of the top five companies on the list are from China, including Industrial and Commercial Bank of China in the top spot for the eighth straight year with more than $4.3 trillion in assets.

Forbes noted that many of the companies on its list have come through a particularly difficult first quarter as a result of the COVID-19 pandemic, or what it describes as “The Great Cessation.”

“Many companies and organizations have faced difficulties in managing and mitigating the impact of COVID-19 crisis. However, there are some companies that have prepared well and put in action plans to avoid this crisis with the least damage,” said Fahad Alfaifi, a Saudi-based strategy and business planning consultant.

The pandemic has come at a time of historic change in the Kingdom’s corporate landscape driven by economic reforms which form a major part of the Vision 2030 agenda. This aims to reduce the country’s reliance on oil revenues and stimulate investment in sectors of the economy that create new jobs for a youthful population.

This backdrop has meant many companies in the Kingdom were already changing the way they did business before the arrival of the pandemic and the collapse of oil prices created new challenges.

Last year’s annual Global Competitiveness Report, issued by the World Economic Forum, placed the Kingdom third among G20 counties and 11th globally

in terms of IT governance which rates a country’s ability to adapt digital technologies such as e-commerce and financial technology.

Such technology skills are becoming increasingly important for economies as they to re-calibrate and adapt to the post-pandemic world.

Nasser Al-Qarawee, the director of the Saudi Study and Research Center, attributed the success of some Saudi companies to the great achievements made by the private sector lately and predicted that more Saudi companies would eventually join Aramco on the Forbes list.

“The national economy has seen enormous improvements and development in terms of laws and legislation that have helped reduce restrictions and bureaucracy, while the government has worked at the same time on reducing dependency on oil. Vision 2030 will further cement the Kingdom’s strong presence globally and make it have a larger influence on global decisions, not only economically but also politically.”

Tawfiq Al-Swailem, CEO of the Gulf Bureau for Research and Economic Consultations, said that many Saudi companies would emerge from the pandemic in a strong position.

“In terms of profits, the Saudi companies have done well, although the entire world is living through a state of ferocious economic war,” he said. “We will see more Saudi companies rising in the next few years.”