Saudi banks stable despite oil price drop, says S&P

Gulf banks have typically strong capital bases and are well placed to cope with economic shocks. (AFP)
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Updated 14 May 2020

Saudi banks stable despite oil price drop, says S&P

  • The Kingdom’s banking sector is well placed to cope with the coronavirus fallout

LONDON: Saudi banks are expected to have enough capital to weather the economic stress created by the coronavirus pandemic, S&P said.

The ratings agency which assesses the creditworthiness of countries and companies believes the Kingdom’s banking sector is well placed to cope with the coronavirus fallout even if lenders are likely to see their cost of risk rise and their net interest income fall.

“We believe Saudi banks will have sufficient capacity to absorb this stress, despite a decline in net interest margins, which still compare well with those of most peers,” S&P said. “Notwithstanding the expected decline in profitability, most Saudi banks will remain profitable in 2020 and 2021 under our base case scenario.”

Mortgage lending is also expected to tick up in the coming years following the relaxation of capital requirements by the Saudi Arabian Monetary Authority (SAMA), S&P said.

Gulf banks have typically strong capital bases and are well placed to cope with economic shocks as they have relatively large sums on deposit that do not pay high interest rates. Rated GCC banks could absorb up to a $36 billion shock in additional credit losses before starting to deplete their capital base, S&P estimates.

While the profitability of some lenders may decline in the wake of the pandemic, most Saudi banks were still likely to remain profitable in 2020 and 2021, S&P said.

Saudi banks are the most resilient in the region to credit losses, according to the agency, while Bahraini banks are the least resilient due to limited government capacity to support the sector. 


Bayut and Dubizzle merge to create a Dubai-based unicorn company

Updated 9 min 36 sec ago

Bayut and Dubizzle merge to create a Dubai-based unicorn company

  • The two owner companies will also run a $150 million investment round
  • EMGP will continue operating both Bayut and Dubizzle in the UAE

DUBAI: The owners of UAE technology firms Bayut and Dubizzle have announced a merger which will form a $1 billion Dubai-based unicorn company, state news agency WAM reported on Tuesday.
Emerging Markets Property Group, EMPG, and OLX Group will also run a $150 million investment round as part of the agreement to merge their MENA and South Asia operations.
Unicorn companies are privately held startups valued at over $1 billion.
The merger makes OLX, EMGS’s largest single holder with 39 percent of shares. EMGP will continue operating both Bayut and Dubizzle in the UAE, and the merger will bring OLX entities in Egypt, Lebanon, Pakistan and several GCC countries into the company’s reach.
“This merger of EMPG and OLX will allow us to better serve our customers, given that both operate brands with a strong following and will allow us to leverage existing tech and data to paint a more accurate picture of the state of affairs in the real estate industry across the region. At the same time, we will be making significant technology investments to provide more value to all users of property, automotive and other segments of the Dubizzle and OLX platform,” Head of EMGP MENA Haider Ali Khan said.
The cumulative value of properties sold in the UAE, Egypt, Lebanon and Pakistan through the websites is estimated at $8.984 billion, offering a possible commission pool of above $1.9 billion for real estate agents.
Meanwhile, Ali Maabereh, head of mergers and acquisition (M&A) at KMPG in Saudi Arabia said M&A activity will increase in GCC countries amid the coronavirus pandemic as SMEs and several large corporates will look for capital injections to satisfy working capital needs.
“The current pandemic is creating a lot of uncertainties and contradictions in what to expect after the dust settles. The expected key impacts on companies are shortages of liquidity and working capital requirements. Though companies might be running a healthy P&L, there will be significant pressure on working capital requirements,” he said.