GCC banks returning to pre-COVID-19 levels amid higher oil prices: S&P Global

GCC banks returning to pre-COVID-19 levels amid higher oil prices: S&P Global
Saudi and Kuwaiti banks showed the strongest performance among the four largest GCC markets (Shutterstock)
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Updated 23 September 2022

GCC banks returning to pre-COVID-19 levels amid higher oil prices: S&P Global

GCC banks returning to pre-COVID-19 levels amid higher oil prices: S&P Global

RIYADH: Gulf Cooperation Council banks are returning to form after a strong first half of 2022, with earnings for most of them reaching almost pre-pandemic levels by the end of the year, according to S&P Global Ratings.

This optimism is spurred by high oil prices, rising interest rates, supporting the banks' creditworthiness, along with new public-sector-backed projects, the agency said.

In the first half, margins slightly improved in most systems. 

Saudi and Kuwaiti banks showed the strongest performance among the four largest GCC markets, with earnings already almost reaching pre-pandemic levels, while Qatari and the UAE banks are taking a bit longer to recover, according to the report.

In the second half of the year, higher net interest margins will likely offset an increasing cost of risk, leaving banks with stronger full-year profits than 2021.

The cost of risk will likely stabilize at normalized levels this year, partly due to adequate provisioning.

Still, some loans that benefited from support measures may turn nonperforming, S&P said.

GCC banks face a less certain 2023, with expectations of lower oil prices and risks to economic growth in the US and Europe.

Saudi Arabia

As Saudi banks’ financial performance has almost recovered to pre-COVID-19 levels, S&P expects an average return on assets of 2 percent in 2022 compared with 2.1 percent in 2019. 

Credit to the private sector expanded 8.5 percent over the first half, due to stronger-than-expected mortgage growth, owing to market saturation and a pick-up in demand for corporate credit driven by Vision 2030 projects. 

Aggregated cost of risk remained low, at about 46 basis points, due to the strong economic rebound, and the share of Stage 3 loans remained broadly flat, estimated at about 2 percent. 

Saudi banks’ non-performing loan coverage stood at 160 percent to 170 percent in 2022. 

Higher credit growth momentum will continue into the second half of the year, mostly due to stronger-than-expected performance in the mortgage portfolio, according to S&P.

“We now expect credit growth to reach about 15 percent in 2022,” the agency said.

However, there is expectation that higher interest rates and market saturation will eventually curb mortgage origination.

S&P expects corporate lending to start contributing to loan growth, as the gradual increase in interest rates will continue to feed Saudi banks' margins, eventually pushing them up by year-end. 

Still, the cost of risk is expected to somewhat increase over the second half to 70 bps-80 bps as some of the loans restructured post-pandemic are reclassified. 

The systemwide ROA is set to stabilize at 1.9 percent to 2.1 percent from 2022. 

The increasing risk of recessions in the US and Europe, along with higher interest rates, could pressure the operating environment in the Kingdom, especially if oil prices drop. Also, higher interest rates could result in a shift away from non-commission-bearing deposits, which may pressure banks' margins.

The UAE

Higher interest rates and lower cost of risk in the UAE will support banking sector profitability, according to S&P Ratings.

Asset quality is also set to stabilize while the NPLs are expected to remain contained with the support scheme ending.

Banks' performance in the UAE improved in first-half 2022 due to lower cost of risk and higher interest rates, while the Central Bank of the UAE's COVID-19-related targeted economic support scheme also helped the system, limiting the increase in NPLs. 

At the same time, the macroeconomic environment has started to improve driven by higher oil prices and recovery in the non-oil sector.

Better operating conditions led to higher lending growth in first-half 2202 compared with 2021, although this could be tempered by increasing interest rates in the second half. 

Kuwait

Higher oil prices and the economic recovery in Kuwait have supported faster lending growth and lower cost of risk, creating a supportive environment.

Further reduction in cost of risk and higher lending growth of 9 percent year-on-year in the first half led to stronger banks' earnings.

Non-interest income continued to benefit from the improved operating environment, while higher inflation and the resumption of some costs as the pandemic wanes spurred a 10 percent increase in operating costs compared with the first half of 2021, offsetting the benefits from higher revenue.

Momentum may slow in the second half, with some NPL formation, according to S&P Global. 

Qatar

The Qatari private sector credit is set to grow by 5 percent in 2022, less than half the average rate seen over the previous three years, according to S&P Global. 

The World Cup at the end of the year along with positive sentiment stemming from high natural gas prices will push consumption lending to strongest growth.

However, government construction projects have mostly been completed, which is shown in banks' first-half performance. 

Overall credit could reduce slightly if lending to the government continues to decline in the second half, which the agency views as likely given the projected fiscal surplus of about 12 percent of GDP.

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Updated 08 February 2023

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RIYADH: Oil prices were little changed on Wednesday amid subdued movements in the dollar, and as investors waited for more inventory data for more clues on demand trends. 

Brent crude futures rose by 06 cents to $83.75 a barrel at 08.00 a.m. Saudi time, after gaining 3.3 percent in the previous session. 

US West Texas Intermediate crude futures climbed by 19 cents to $77.33, after jumping 4.1 percent in the previous session. 

US crude output to rise in 2023, while demand to stay flat: EIA 

US crude production will rise in 2023, while demand will stay flat, the US Energy Information Administration said in its Short-Term Energy Outlook on Tuesday. 

The EIA projected that crude production will rise to 12.49 million barrels per day in 2023 and 12.65 million bpd in 2024. 

The agency also projected petroleum and other liquid fuels consumption would stay flat at 20.3 million bpd in 2023 and rise to 20.6 million bpd in 2024.

BP makes record profit in 2022 

BP reported on Tuesday a record profit of $27.6 billion for 2022 and hiked its dividend, but infuriated climate activists by rowing back on plans to slash oil and gas output and reduce carbon emissions by 2030. 

The blockbuster profit follows similar reports from rivals Shell, Exxon Mobil and Chevron last week after energy prices surged in the wake of Russia’s invasion of Ukraine, prompting new calls to further tax the sector as households struggle to pay energy bills. 

BP’s $4.8 billion fourth-quarter underlying replacement cost profit, its definition of net income, narrowly missed a $5 billion company-provided analyst forecast. 

The results were impacted by weaker gas trading activity after an “exceptional” third quarter, higher refinery maintenance and lower oil and gas prices. 

But for the year, BP’s $27.6 billion profit exceeded its 2008 record of $26 billion despite a $25 billion write-down of its Russian assets. 

That allowed it to boost its dividend by 10 percent to 6.61 cents per share, after halving it in the wake of the pandemic, and announce plans to repurchase $2.75 billion worth of shares over the next three months after buying $11.7 billion in 2022. 

(With input from Reuters) 

 


Saudi Arabia calls on African mining industry to invest in Kingdom’s ‘rich, vast natural resources’

Saudi Arabia calls on African mining industry to invest in Kingdom’s ‘rich, vast natural resources’
Updated 08 February 2023

Saudi Arabia calls on African mining industry to invest in Kingdom’s ‘rich, vast natural resources’

Saudi Arabia calls on African mining industry to invest in Kingdom’s ‘rich, vast natural resources’
  • Khalid Al-Mudayfer, deputy minister for mining affairs, told the African Mining Conference in Cape Town the value of the Kingdom’s mineral wealth is estimated at $1.3 trillion

RIYADH: Saudi Arabia called on leading stakeholders in the mining industry across Africa to work together and benefit from the Kingdom’s rich and vast natural resources, to help support economic growth and social development.

Speaking during the African Mining Conference in Cape Town, South Africa, Khalid Al-Mudayfer, the Saudi deputy minister for mining affairs, said the value of the Kingdom’s mineral wealth is estimated at $1.3 trillion, the Saudi Press Agency reported on Tuesday.

He reviewed investment opportunities offered by the Ministry of Industry and Mineral Resources, along with the infrastructure and legislative capabilities of the Kingdom, which he said positions Saudi Arabia as the leading global destination for investment in the mining sector.

Al-Mudayfer, who inaugurated a meeting organized by the ministry for potential investors, highlighted the great opportunities he said were available in the Kingdom, and its efforts to develop its mining sector.

He spoke about the modernization of the mining investment system, which includes regulatory infrastructure for the sector and a clear, transparent and simple environment for investors, along with the availability of geological data for investors, improvements to basic infrastructure, and incentives for those who invest.

The Saudi delegation at the four-day exhibition included representatives from the Ministry of Investment, the National Industry Development and Logistics Program, the Saudi Geological Survey, and the National Center for Industrial Development.

The Saudi pavilion at the event showcases the Kingdom’s continual efforts to develop its mining sector by facilitating access to geological data and updating regulations and legislation to attract investors, build the foundations for sustainability, and develop a mining sector based on integrated value chains.


LEAP investment workshop uses Lego to encourage entrepreneurial culture change

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Updated 08 February 2023

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LEAP investment workshop uses Lego to encourage entrepreneurial culture change
  • David Gram-Hanssen of Diplomatic Rebels underscored importance of innovation and change while anticipating resistance
  • Workshop used Lego building blocks to demonstrate how a more experimental and entrepreneurial culture can be adopted

RIYADH: Interactive investment workshops were featured on the second day of LEAP’s second edition, with the spotlight falling on David Gram-Hanssen, co-founder of Diplomatic Rebels.

His workshop utilized Lego building blocks to help participants focus on the changes they can create in the future as they become diplomatic rebels in their respective industries.

He said: “Future success depends on the ability to explore and experiment. We all need to become even better at adapting to change.

“There’s a perfect storm of change happening right now geopolitically, environmentally, business-wise. Everything seems to be sort of moving, and over time that speed is only going to pick up.”

Diplomatic Rebels was a concept created out of the work of Lego’s radical innovation department, Future Lab.

It turned into a system and a way of thought that helped people navigate the bureaucracy of companies, sparking change in their offices and communities.

Gram-Hanssen, who previously worked at Lego Ventures, said companies needed to adopt this entrepreneurial culture.

He added: “At Lego we started saying as a mantra, radical is normal. It means that radical change and radical innovation is the new normal.

“We constantly have to move along and experiment and explore what is happening out there.”

He discussed what it means to be a diplomatic rebel, sparking innovation and positive change while anticipating resistance.

He said: “One of the things at Lego that we understood over time was when you’re working with radical innovation and trying to change things, it’s really hard work.

“One aspect to be mindful of is creating the necessary resilience in the teams you are working with.”

He explained that most entrepreneurs feel like they are constantly fighting the immune system of that existing environment.

He added: “They are trying to do something that doesn’t compute in the existing system.”

Gram-Hanssen gave his audience the task of building a Lego model to represent their work today and their vision for the future.

He also explained the concept of a “pretotype,” a predecessor of a prototype, which aims to gather data to aid faster testing, encouraging participants at the session to implement the concept in their daily lives.

He said: “The right question is not so much what is going to change and when, because it’s hard to foresee.

“Maybe the right question to ask is how do we take a lead on this change? What is it? What do we want to see in the world, and how do we put ourselves in front of this change?”

 


Nuclear energy offers ‘a golden opportunity’ to build a clean world

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Updated 07 February 2023

Nuclear energy offers ‘a golden opportunity’ to build a clean world

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RIYADH: Being a cost-effective and low-carbon solution, nuclear energy “offers a golden opportunity” to help build a clean world, according to the director general of the World Nuclear Association.

Sama Bilbao y Leon was speaking as a keynote speaker at the 44th IAEE International Conference in Riyadh on Tuesday. The top official said nuclear energy offers an opportunity to build a cleaner and more equitable world in which everyone has access to “clean, abundant and affordable round-the-clock energy and high quality of life.”

“As a low-carbon energy source, nuclear power can play a very important role, decarbonizing other difficult-to-able sectors,” she said.

The official said nuclear energy is certainly a cost-effective, low-carbon solution and a catalyst for economic development. It is more efficient than other sources when we think of energy transition, she added.

She, however, cautioned saying that much work is needed to deploy nuclear power with determination and speed.

Leon also pointed out that the current energy market is unstable, and there is a need to take a step back and adopt scientific approaches to make the sustainable energy transition a success.

Yousef Al-Ghamdi, executive director of strategic planning at the Saudi Electricity Co. noted that renewable energy will play an important role in energy transition, especially hydrogen energy.

Shihab Elborai, a partner at Strategy& Middle East, underscored the importance of technological advances to meet the challenges of climate change. He said recycling can help mitigate the climate effect and reduce carbon in the environment, therefore countries should invest in efficient technologies to improve the energy sector.

Peter Hartley, the George A. Peterkin Professor of Economics at Rice University, said natural gas is cheaper and a better option and as an energy source is going to stay. He added that nuclear energy is a costly affair.

Ayad Alamri, executive director for business development, at ACWA Power, said that PVC has a key role in clean energy management and distribution as we are aiming at a net-zero future.


Saudi, Hong Kong bourses sign MoU to explore listing opportunities

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Updated 07 February 2023

Saudi, Hong Kong bourses sign MoU to explore listing opportunities

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RIYADH: Saudi Tadawul Group Holding Co. has signed a memorandum of understanding with Hong Kong Exchanges and Clearing to work together to explore listing opportunities and collaborate in sectors such as fintech and environmental, social and governance, according to a tweet by the parent company of the Saudi Exchange.

The MoU reflected the HKEX’s “ongoing commitment to driving global connectivity and shaping a successful shared sustainable future,” said Nicolas Aguzin, CEO of the Hong Kong bourse operator.

“This MoU brings us one step closer toward enabling cross listings and other areas of collaboration between Saudi Arabia and Hong Kong,” Tadawul CEO Khalid Al-Hussan was quoted as saying by the Chinese media.

“As we seek to position the Saudi capital market as an investment hub between East and West, we are seeing increased interest from issuers and investors in Asia.”