KUWAIT CITY: Net earnings of Gulf banks are expected to slide as government spending slows due to a dive in oil revenues, the Standard and Poor’s ratings agency said yesterday. Growth in net income declined to 4.0 percent in the second quarter, compared with 7.0 percent in the first three months of the year and more than 10 percent in the previous three quarters, S&P said in a report based on a survey of 26 major Gulf banks. “We expect Gulf banks’ net income growth to decline below 10 percent in 2015 and potentially slow further in 2016,” the ratings agency said.
The “good” earnings in the first half were due in part to declining credit losses and a reduction in provisions or funds set aside for doubtful loans. “But, owing to the knock-on effects of lower oil prices on growth and asset quality, earnings could weaken over the next several quarters,” S&P said. Low oil income has slowed government expenditures on which the private sector largely depends. World oil prices have dropped by more than 50 percent since June 2014. The International Monetary Fund forecasts that will result in a $300 billion drop in revenues this year for the six GCC states-Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. Customer deposits also lost momentum in the first half.
The GCC banks increased customer deposits 6.0 percent in the first and second quarters of 2015, compared with more than 10 percent in the previous eight quarters, S&P said. Six of the 26 banks reported negative deposit growth in the second quarter while 10 posted a contraction in non-interest income in the first half. Other areas of weakness were a contraction in fees for loan origination, brokerage, and capital market activities, it said. Greece’s stock market watchdog said it was maintaining a short-selling ban on the shares of top banks ahead of an imminent recapitalization process. “The measure shall be in force (from) October 1 (to) November 9,” the capital market commission said in a statement. “Any additional pressure on the listed stocks of credit institutions could have consequences,” it said.
The ban applies to shares of Alpha Bank, Attica Bank, Eurobank, National Bank and Piraeus Bank. Short-selling occurs when investors sell shares they do not own in anticipation of a fall in their price, fuelling market volatility. The short-selling ban was imposed in June alongside capital controls when fears of Greece being ejected from the euro-zone caused a run on bank deposits. Since then, Greece has agreed a new, 86-billion-euro ($96-billion) bailout with international creditors and in early September the short-selling ban was lifted for equity derivatives. In its statement, the commission said “recent political developments” did not justify the continuation of the general ban on short-selling, and that it had “decided to prohibit only the short-selling of shares of the credit institutions”. Greek banks are to be recapitalized by December, before new EU-wide bank rescue regulations that could affect depositors come into play in 2016. Close to 25 billion euros has been set aside under the latest aid plan to recapitalize Greece’s ailing banks, although this amount could change depending on the outcome of stress tests being carried out by the European Central Bank.
