Moody’s says outlook for GCC banks is stable in 2019

The outlook for GCC banking systems remains stable, reflecting their improving operating conditions, stable loan performance and high levels of capitalisation, according to a report by Moody’s Investors Service.

Real GDP growth in 2019 is expected to rise to an average of about 3.3 per cent, from 1 per cent in 2017, easing fiscal pressures and keeping government spending plans on track.

Banks in Kuwait, the UAE and Saudi Arabia will remain resilient, while fiscal pressures may weigh on banks in Oman and Bahrain, where oil prices will likely remain below the fiscal breakeven level.

Opec-plus deal fails to raise crude oil prices

The oil production cut agreement reached in Vienna on 6-7 December by members of Saudi Arabia-led oil producers’ group Opec and 11 of its allies, headed by Russia, has not provided a significant improvement to crude prices. Key global oil producers agreed to reduce output by 1.2 million barrels a day from January 2019 until the end of the first half of the year, halting the descent in the price of Brent crude. However, the market has remained bearish since the deal, with Brent continuing to trade at around the $60-a-barrel mark, raising questions about the deal’s effectiveness. READ MORE

Warring parties agree to UN-brokered truce agreement

The Saudi-led Arab coalition and Houthis have agreed to a ceasefire in Yemen during UN-led talks held in Sweden.

The ceasefire covers the Red Sea port city of Hudaydah, and includes other measures aimed at ending fighting in the country and relieving the humanitarian crisis.

“You have reached an agreement on Hudaydah port and city, which will see a mutual redeployment of forces from the port and the city, and the establishment of a governorate-wide ceasefire,” said UN secretary-general Antonio Guterres on 13 December. He noted that the UN would play “a leading role” in the port, which is a vital trade link for Yemen and is used for importing food. READ MORE

Key petrochemicals companies sign agreement to merge

Long-held plans to merge two Saudi Arabian petrochemicals companies, Saudi International Petrochemical Company (Sipchem) and Sahara Petrochemical, have finally been agreed.

A binding agreement was signed on 6 December to implement the merger, which is expected in mid-2019 and will involve Sipchem acquiring shares in Sahara.

By the end of June 2019, it is expected that all of Sahara’s shares on the Saudi Stock Exchange will be delisted and Sahara will become a wholly owned subsidiary of Sipchem. With a combined market capitalisation of about SR14.8bn ($3.95bn), the new company will be the sixth-largest petrochemicals firm in the kingdom, behind PetroRabigh, Saudi Kayan, Saudi Fertiliser Company, Yansab and Saudi Basic Industries Corporation. READ MORE

Baghdad’s credit remains stable despite challenges

Credit ratings agency Moody’s has said in a new report that Iraq’s Caa1 stable credit profile reflects its significant institutional and political challenges, as well as the deterioration in the government’s fiscal position over the past five years. The fiscal outlook has improved since 2017, however, as a result of higher oil prices.

Iraq is making slow progress with its ongoing structural reform agenda, which is backed by the Washington-based IMF and includes enacting laws and developing the institutions it needs to make its public finances sustainable, Moody’s says.

However, diversifying the economy remains a challenge because infrastructure weaknesses, an inefficient banking system, unstable electricity supply, skill shortages and corruption are constraining the growth of private non-oil industries.

Volatile GDP growth in part reflects the economy’s high concentration in the oil sector, Moody’s states.

Chinese operator suspends work on Iran gas project

State-owned China National Petroleum Corporation (CNPC) has reportedly suspended its investment in phase 11 of Iran’s South Pars gas field development, following pressure from the US amid ongoing trade talks.

CNPC replaced Total on the estimated $5bn project in August after the French energy major pulled out in the wake of the US energy-related sanctions in effect from 4 November.

Before it withdrew, Total held a 50.1 per cent stake in the project, while CNPC owned 30 per cent and Iran’s Petropars held the remaining 19.9 per cent. CNPC took over the project with a 80.1 per cent stake. READ MORE

Kuwait lifts foreign ownership restrictions on local banks

Kuwait will allow foreign investors to own and trade shares in the country’s banks ahead of index compiler MSCI’s anticipated decision in 2019 to upgrade Kuwait to emerging market status. The decree permits foreign investors to own up to 5 per cent of a Kuwaiti bank’s capital directly or indirectly, according to the Ministry of Commerce & Industry. Any levels exceeding that limit will require the approval of the Central Bank of Kuwait.

Kuwaiti banks are expected to post higher annual earnings in 2019, driven by increased lending as the government presses ahead with project spending and consumer confidence improves, according to Egyptian investment bank EFG-Hermes, which operates in Kuwait.

EU and US warn Turkey against unilateral action on Syria

The EU’s foreign policy chief has called on Turkey to refrain from any unilateral military action in Syria, where Ankara has threatened an offensive against a US-backed Kurdish militia. “The statements of a possible Turkish military operation in northeast Syria are a source of concern,” said the EU’s Federica Mogherini.

Turkey’s President Recep Tayyip Erdogan said in mid-December that the country will launch a new operation in Syria against the Kurdish People’s Protection Units militia, which have Washington’s support, but which Ankara considers a terrorist group. The Pentagon has also warned that any action by Turkey in northern Syria would be “unacceptable”.

Saudi Arabia plans security grouping of Red Sea countries

Saudi Arabia has announced a plan to establish a new political council aimed at securing the Red Sea, comprising Saudi Arabia, Egypt, Djibouti, Somalia, Sudan, Yemen and Jordan.

The initiative was discussed in Riyadh at a gathering of foreign ministers from the seven coastal Arab and African nations.

The meeting is the first to gather the seven countries in a bid to improve the economic and maritime security of the Red Sea coast. Experts will meet in Cairo soon to work out the details of the formation of the group, including a potential framework for managing the affairs of the Red Sea and its choke points, through which approximately 10 per cent of world trade passes.