Banks in GCC benefiting from strong operating conditions: Fitch Ratings  

Banks in GCC benefiting from strong operating conditions: Fitch Ratings  
Strong operating conditions have contributed to robust asset quality metrics in the UAE and Saudi Arabia during the first half of 2023.  Photo/Shutterstock
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Updated 01 October 2023
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Banks in GCC benefiting from strong operating conditions: Fitch Ratings  

Banks in GCC benefiting from strong operating conditions: Fitch Ratings  

RIYADH: Banks in the Gulf Cooperation Council are currently reaping the benefits of robust operating conditions, driven by factors such as high oil prices, contained inflation, and rising interest rates, according to Fitch Ratings.  

In its latest report, the US-based credit rating agency pointed out variations in bank performance across the GCC markets, with financial institutions in the UAE demonstrating signs of improvement compared to their counterparts. 

“We expect this improvement to be overall sustained, which, along with other solid financial metrics being maintained, could lead to positive rating actions on some UAE banks’ Viability Ratings,” said Fitch Ratings.  

The report highlights that banks in Saudi Arabia, Qatar, and the UAE are well-positioned to benefit from rising interest rates, primarily due to the swift repricing of loan books and substantial funding from low-cost current and savings accounts. 

UAE banks, in particular, have seen significant gains from rising rates, with average net interest margins increasing by 100 base points in the first half of 2023 compared to 2020.  

NIMs in the UAE are anticipated to stabilize in the second half of 2023 before experiencing a slight dip in 2024, the report added. 

Conversely, Qatari banks have experienced only modest NIM improvements due to weak credit demand and ongoing public sector repayment of overdraft facilities. 

Strong operating conditions have contributed to robust asset quality metrics in the UAE and Saudi Arabia during the first half of 2023.  

“UAE mortgage portfolios could be pressured given their high proportion of variable-rate loans, but the rise in property prices should keep losses-given-default close to nil,” added Fitch.   

Saudi banks are projected to outpace the GCC average in financing growth for both 2023 and 2024, driven by increased corporate credit demand and persistent high interest rates. 

With oil prices expected to average $80 per barrel in 2023 and $75 per barrel in 2024, the region’s banks can anticipate continued support for their operating conditions, as per the report. 


Giga-projects propel Saudi Arabia’s construction boom amid global interest, study says

Giga-projects propel Saudi Arabia’s construction boom amid global interest, study says
Updated 16 sec ago
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Giga-projects propel Saudi Arabia’s construction boom amid global interest, study says

Giga-projects propel Saudi Arabia’s construction boom amid global interest, study says

RIYADH: Saudi Arabia’s state-backed initiatives, including NEOM and Vision 2030, are driving growth in the construction sector, attracting substantial domestic and international investments, an analysis showed.    

In its latest report, global consultancy firm Turner & Townsend highlighted that the construction activities are also driven by the Kingdom’s preparations for EXPO 2030 and the 2034 FIFA World Cup.   

This comes as Saudi Arabia emerged as the leader in global construction activity for the first quarter, with the Kingdom having $1.5 trillion of projects in the pipeline, according to a report released earlier this month by real estate services firm JLL. 

The JLL analysis further highlighted that the Kingdom accounted for a 39 percent share of the total construction projects in the Middle East and North Africa region, valued at $3.9 trillion. 

“The stand-out story is the accelerated development of Saudi Arabia, where vast ambitions are being realized via projects like The Line, King Salman Park and Diriyah Gate,” said Mark Hamill, director and head of Middle East real estate and major programs, at Turner & Townsend.   

The Line is a linear smart city currently under construction in Saudi Arabia’s $500-billion megacity NEOM, while King Salman Park is a 4102-acre large-scale public park and urban district which is being developed in Riyadh.   

The report highlighted that despite political uncertainties, substantial investments are driving growth in the Gulf region as countries seek to diversify beyond traditional energy sources.  

This occurs against the backdrop of Turner & Townsend ranking the Kingdom as the 19th most expensive country for construction globally, contrasting sharply with the US, which dominated the top 10 list. 

The report further noted that construction cost inflation in Riyadh is easing from the highs of 7.0 percent seen in 2023, but is forecasted to remain high at 5.0 percent through 2024.   

The analysis also highlighted Saudi Arabia’s efforts to attract global corporate occupiers through its Regional Headquarters Program.  

It added: “This scheme encourages companies to launch offices in Saudi Arabia and there are cost advantages to office investment with an average high-rise central business district office in Riyadh costing a relatively low $2,266 per sq. m.”   

The UK-based company also pointed out that Saudi Arabia is also facing a shortage of skilled labor which is crucial to materialize and fulfill construction activities as planned.   

“Skilled labor shortages are also keeping costs elevated as Saudi Arabia suffers from a distinct shortage of skilled labor that is vital to deliver its most ambitious programs. The talent and resources needed for giga-projects in the country are also stretching overall supply chain capacity across the Middle East,” said the report.     

Regional insight  

According to the report, Qatar’s capital city Doha is the second most expensive market in the region at $2,096 per sq. m.   

However, following the high output in the lead-up to the 2022 FIFA World Cup, construction cost inflation is projected to fall from 3.5 percent in 2023 to 2.5 percent in 2024, the study said.   

On the other hand, Dubai has an average cost to build of $1,874 per sq. m., supported by high tourism activity and residential sector development.  

“The UAE has been a hotspot for tourism in the region in recent years and its relatively low cost of construction, when compared with Western markets, still makes it an attractive place to build the hubs and amenities for international visitors,” said the report.     

It added: “In Dubai, residential development is buoying the local market as the city aims to support its growing population. Its attractiveness as a market is bolstered by its comparably low cost of construction.”   

On the other hand, Abu Dhabi is the fourth most expensive market in the Middle East at $1,844.2 per sq. m.   

Hamill noted that there are considerable real estate opportunities in the UAE and Qatar as inflation cools.   

He added: “Nevertheless, with labor capacity being stretched across the region, clients will need to review their procurement and contracting models to help mitigate supply chain disruption and maximize the potential opportunities on offer.”   

Global outlook  

The report revealed that construction pipelines globally are set to grow this year, but skill shortage could remain a major concern.   

“The global real estate market is emerging from a challenging period of inflationary pressures, volatility and disruption. Our sector has proved resilient, and a focus on building new approaches to procurement and supply chain development to drive efficiency and productivity is opening new opportunities across many markets,” said Neil Bullen, managing director, global real estate at Turner & Townsend.   

He added: “Clients need to understand where labor bottlenecks may constrain their capital investment programs and work collaboratively with the supply chain to understand how best to mitigate the risk to delivery.”   

The US dominated the rankings of the most expensive places to build, with six cities from the country grabbing their spots in the top 10 list.   

New York retained its position as the most expensive market to build in for the second year running at an average cost of $5,723 per sq. m., closely followed by San Francisco at $5,489.   

Zurich came in the third spot as it surpassed Geneva in the ranking with an average cost of $5,035 per sq. m. Geneva, which came in the fourth spot, averaged $5,022 per sq. m.   

US cities Los Angeles, Boston, Seattle and Chicago came in the fifth, sixth, seventh and eighth spots respectively in the list.   

From Asia, Hong Kong came in the ninth spot with an average cost of $4,500, followed by London at $4,473.   

The report also highlighted that implementing technology in the construction sector could help overcome various challenges faced by the industry.   

“Accelerating digitalization also presents a huge opportunity, but this requires us to keep up with the demand for skilled labor, and persistent shortages risk constraining potential growth,” said Bullen.   

He added: “As interest rate cuts become an increasing possibility for many markets, and pent-up investor appetite can be unlocked, capacity could be tested still further.” 


Credit facilities for UAE’s business and industrial sectors exceed $206.2bn

Credit facilities for UAE’s business and industrial sectors exceed $206.2bn
Updated 47 min 42 sec ago
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Credit facilities for UAE’s business and industrial sectors exceed $206.2bn

Credit facilities for UAE’s business and industrial sectors exceed $206.2bn

RIYADH: The cumulative credit balance in the UAE’s business and industrial sectors rose to 757.4 billion dirhams ($206.2 billion) in the first quarter of the year, up from 741.8 billion dirhams at the end of 2023.

A release from the Central Bank of the UAE showed that credit facilities extended just by the country’s national banks to these sectors reached 15.6 billion dirhams in the three months of the year.

Comparing month-on-month figures, the credit balance saw a rise of 9.3 billion dirhams in March compared to the previous month, reflecting a steady upward trend in lending activities, the Emirates News Agency said.

Year-on-year, the sectors experienced a substantial 3.02 percent increase in credit availability, amounting to 22.2 billion dirhams from 735.2 billion dirhams in March 2023, showcasing sustained financial support over the past year.

National banks emerged as the primary financiers, contributing 841.7 billion dirhams or 90 percent of the combined credit balance for these sectors by the end of the first quarter of 2024, according to WAM.

In contrast, foreign banks held a smaller share, providing 84.3 billion dirhams, highlighting the dominant role of domestic financial institutions in driving economic growth.

Geographically, Abu Dhabi-based banks played a significant role by extending credit amounting to 374.1 billion dirhams, while Dubai-based banks provided 363.3 billion dirhams. 

Additional Emirates banks collectively contributed 104.3 billion dirhams to support business and industrial activities during the same period, underscoring the balanced regional distribution of financial resources.

In terms of banking preferences, conventional financial institutes continued to be the preferred choice for credit financing, accounting for approximately 694 billion dirhams or 82.5 percent of the total credit extended to the trade and industry sectors by March 2024. 

Islamic banks, reflecting their growing influence in the financial sector, contributed approximately 147.7 billion dirhams, constituting 17.5 percent of the financing provided, reflecting their expanding role in catering to diverse financial needs.

In 2023, the UAE’s industrial sector alone contributed $54 billion to the country’s gross domestic product, up 9 percent compared to 2022 figures.     

The boost was attributed to four main pillars, including providing a business-friendly environment that supports the growth and attractiveness of UAE firms, the Emirates News Agency reported.


Saudi Arabia leads emerging markets in bond issuance, surpassing China

Saudi Arabia leads emerging markets in bond issuance, surpassing China
Updated 20 June 2024
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Saudi Arabia leads emerging markets in bond issuance, surpassing China

Saudi Arabia leads emerging markets in bond issuance, surpassing China

RIYADH: Saudi Arabia has emerged as the top issuer of international bonds among emerging markets, surpassing China with $33.2 billion in bond sales to date, according to a new report.  

This marks the first time in 12 years that China has been displaced from the top spot, thanks to an 8 percent growth in Saudi Arabia’s bond sales this year, Bloomberg reported.  

The Kingdom’s record pace of borrowing is driven by increasing support from global debt investors for the nation’s Vision 2030 plan which aims to diversify the Saudi economy away from oil dependence and transform the country into a global business hub by the end of the decade.  

In contrast, Chinese borrowers are experiencing a significant shift in their financing strategies. A surge in demand for local-currency bonds has slowed China’s international bond issuance to one of its lowest levels in recent years.   

“Sentiment for Saudi bonds is very healthy,” Apostolos Bantis, managing director of fixed-income advisory at Union Bancaire Privee, told Bloomberg.  

“It’s not a surprise that the Kingdom has become the largest EM bond issuer given its large funding needs for large infrastructure projects,” he added.  

Saudi Arabia’s ascent is particularly notable given its relatively smaller economy compared to China.   

With a gross domestic product only 1/16th the size of China’s, the Kingdom’s ability to attract substantial international investment is a testament to the growing confidence in its economic reforms and strategic vision.  

The surge in bond issuance across emerging markets reflects a broader trend of falling borrowing costs and a robust appetite for higher yields among global investors.   

This favorable environment is enabling countries like Saudi Arabia to secure funding for ambitious projects aimed at economic diversification and enhanced global connectivity.  

In addition to boosting its bond issuance, Saudi Arabia is actively seeking alternative sources of funding to address an anticipated fiscal shortfall of approximately $21 billion this year, the report stated.  

The Kingdom expects its total funding activities for the year to reach around $37 billion to help accelerate the Vision 2030 initiatives.

The substantial turn to the bond market is partly a response to shortfalls in foreign direct investment and constrained oil revenues due to supply cuts.  


Al Habtoor Group initiates arbitration against Marriott over management agreement termination

Al Habtoor Group initiates arbitration against Marriott over management agreement termination
Updated 20 June 2024
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Al Habtoor Group initiates arbitration against Marriott over management agreement termination

Al Habtoor Group initiates arbitration against Marriott over management agreement termination

RIYADH: Business giant Al Habtoor Group has filed an arbitration case against Marriott International, the Dubai-based conglomerate confirmed to Arab News.

The corporation is seeking to terminate a management agreement with the hotel giant and is pursuing substantial compensation.

Al Habtoor Group’s spokesperson told Arab News that the arbitration case was lodged through its subsidiary in Budapest.

They added that the objective is “to terminate the management agreement of the Ritz Carlton Budapest and claim high compensation.”

The group noted that the details of the arbitration proceeding will remain confidential.

Arab News contacted Marriott International via the press office for comment on the arbitration case, but the company has yet to respond to a number of emails.

An arbitration case is a legal process where a dispute is resolved outside of the courts by one or more neutral third parties, called arbitrators. The arbitrators’ decision is usually binding and enforceable, providing a private and often quicker resolution compared to traditional court litigation.

Al Habtoor Group, a prominent player in the hospitality, real estate, and automotive sectors, has a substantial presence in Budapest. The move to arbitration indicates a serious escalation in the dispute, as this course of action is typically pursued when negotiations and other forms of resolution have failed.

Marriott International, headquartered in Bethesda, Maryland, is one of the world’s leading hotel chains, operating and franchising a broad portfolio of hotels and related lodging facilities. It has a prominent position and manages several highly successful properties across the MENA region.


Kuwait’s Al-Zour Refinery’s output hits 615k bpd

Kuwait’s Al-Zour Refinery’s output hits 615k bpd
Updated 20 June 2024
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Kuwait’s Al-Zour Refinery’s output hits 615k bpd

Kuwait’s Al-Zour Refinery’s output hits 615k bpd

RIYADH: The fully operational output of Kuwait’s Al-Zour Refinery has reached 615,000 barrels per day, in line with the country’s plan to boost oil refining capacity.   

The refinery’s daily output, which is the cornerstone of the state-run Kuwait Petroleum Corp., includes some 86,000 bpd of premium naphtha, 99,000 bpd of jet fuel, and 147,000 bpd of low-sulfur diesel, respectively, the Saudi Press Agency reported.  

The facility is the second-largest refinery in the Middle East.

In 2023, the International Trade Administration revealed that oil accounts for around 95 percent of Kuwait’s exports, and approximately 90 percent of government export revenue.

According to OPEC, in 2022, the country’s crude oil exports stood at 1.879 million bpd. During the same year, oil accounted for $41,493 of gross domestic product per capita.

According to KPC CEO Sheikh Nawaf Al-Sabah, the nation will now “reap the benefits” of the facility, the principal among them being a sharp rise in Kuwait’s crude oil exports.

By operating at its maximum capacity, the Al-Zour refinery will further enhance Kuwait’s global competitiveness by producing high-quality oil-based products.  

Additionally, Al-Sabah noted that he was “proud” of the dedication and commitment of KPC’s national workforce, stressing that their experiences in handling such a critical project would serve them well throughout their professional careers, enabling them to better deal with future endeavors.

This daily yield is produced while keeping carbon emissions in check, aligning well with the commitment of the major oil supplier and member of the OPEC consortium toward environmental sustainability goals.  

Moreover, operating in full swing, the facility is positioned to elevate KPC’s regional standing by playing a significant role in achieving the company’s major objectives.

The output increase comes despite the fact that the OPEC+ member recently announced an extension of additional voluntary cuts of 135,000 million bpd for the second quarter of 2024 in order to support the stability and balance of oil markets.

Kuwait’s economy remains highly dependent on the oil sector, with the country holding approximately 7 percent of global oil reserves.