Unintended (?) Political Commentary from Gulf News on BREXIT

Has today’s Gulf News, the newspaper of record for the GCC, taken a stand on BREXIT in Sir Kim fashion?

“Rats” indeed!

AA has heard of rats leaving a sinking ship.

But not rats sinking the ship.

As to the news article itself, AA has his doubts.  A BofE official with the name Gertjan Vlieghe?  Not likely on PM Bojo's watch.

Gulf News Reports on UAB's Front-Loaded Loan - Stumping AA

AA's Brother Stumped Again But a Completely 

Different Situation than AA

Under the headline  "UAB front-loads syndicated term loan to $195m" the GCC's newspaper of record, Gulf News reported that

United Arab Bank said it has concluded of its $195 million 2-year syndicated term loan facility, 30 per cent more than the original planned amount of $150 million.

AA is familiar with the term “upsize” used in situations like this.

Front-load generally refers to the paying of fees at inception of a deal or a pattern of interest payments that are initially greater than principal payments.  

For example, a “load” on an investment fund that one pays up front as the price of entry to the fund.  If the load is 2% and you give the investment fund manager USD 100, you actually only invest USD 98.  As an aside, you should avoid funds with front-end loads, unless of course you’re dealing with Bernie Madoff.

The other case is where payments for interest are front-loaded.  

For example, a fixed-rate mortgage where most of the amount of the initial repayments the borrower makes go to paying interest and not reducing principal.

Does the term “front-load” have a different meaning in GCC?  If so, what term is used for the front loaded examples given by AA?

Dubai Islamic Banks - You Can't Tell The Banks Without A Scorecard

A Stroll Down Memory Lane Courtesy of GN's Wayback Machine

GN has changed the picture to DIB.

Just be careful where you get the scorecard from.

AA had to check his spectacles several times today while reading the Gulf News’ article on Dubai Islamic Group  “DIB Group net profit up 14% to Dh. 2.4b”.  

First on the "Top News" Page of the Business Section  above the article on DIB was this picture of Noor Islamic Bank.  

1. Over four years ago (January 2014 to be precise) Noor dropped the word “Islamic” from its name, favoring the punchier “Noor Bank”.   
2. Second, Noor Bank is not part of the Dubai Islamic Bank Group.  NB is owned by various shaykhly personages and government entities, including some rather prominent ones within GN’s home news beat, the Emirate of Dubai.  I guess if you’ve seen one redwood or one Islamic Bank, you’ve pretty much seem them all, even if one (NB) is the self-described “Financial Icon of Dubai”.  
3. As an aside, even though it’s a scant 10 years since NB was founded, based on its status as the FIB (Financial Icon of Dubai), AA for one is ready to bestow the appellation, the “Deutsche Bank” of the GCC on NB. Will GN or Al-Khaleej join me? 

Second, and much more importantly, the following comment caught my eye (italics AA):  

“Non-performing financing ratio and impaired financing ratio improved to 3.3 per cent and 3.2 per cent, respectively, highlighting the quality of new underwriting.

No details on what the levels were at 30 June 2017 or at December 2017 in the GN.  

But AA has your back.  

From DIB's 2018 press release, as of 31 December 2017, the NPA and IFA ratios were 3.4% and 3.2% respectively.  And there has been progress from 2016 as well.

From DIB’s July 2017 press release on 1H earnings, we learn the NPA ratio was 3.6% but there's no information on the IFA ratio.  

Clearly DIB is making progress.  

But if one is touting the fact that new underwriting over the past 12 months or 6 months was of a “high quality” and this reduced the NPA and IFA ratios, does that mean that DIB is admitting that in the past when DIB made loans a good number of them went south within 6 or 12 months of underwriting?  

That would be some really unfortunate careless underwriting.

More Nonsense from Gulf News About the Qatar Crisis

Here’s another gem from the Gulf News re the Qatar crisis under the headline:  “Qatar’s defence of Iran drives further wedge with neighbours”  with the subheading “Comments by defence minister prove Qatar’s arrogant position when it comes to solving year-long crisis”.  

Just what did Qatar’s Defense Minister ("QDM") say to prompt such criticism?  

Let’s read GN's charges.  Words in quotes are verbatim from the GN article cited above. 

First, the Qatari Defense Minister “defended the Iranian nuclear deal despite criticisms from Arab states that the deal has empowered Tehran to wreak havoc in the region.”   

As AA reads the GN’s charge, it’s clear that the QDM did not defend Iran but defended the JCPOA, a position shared with the former President of the United States, Australia, Canada, China, the EU, France, Germany, Ireland, Japan, the Netherlands, Norway, Russia, Sweden, and the UK – all no doubt as arrogant and intransigent as Qatar at least in the eyes of the GN.  Citations here and here.  

Interestingly, neither Kuwait nor Oman have adopted the “Quartet”'s position. 

Also Tehran’s influence/actions in the region pre-date the 2015 JCPOA, e.g., the Huthis seized Sana in 2014, Tehran has been supporting the Syrian Government since before  the JCPOA, and its influence in Iraq also predates the JCPOA.  While JPCOA's negotiations concluded in 2015,  the agreement came into effect in January 2016 (“Implementation Day”). I suppose one, perhaps the GN, would argue that actions before 2015 or 2016 did not consist in wreaking havoc.

Second, the QDM said that “Qatar would not ‘go and fuel a war’ in the region and called for engaging in talks with Iran” and that a war with Iran would be “very dangerous”.  

That seems an eminently sensible position on general terms.   

But for a region that has seen the sad consequences of wars in Iraq, Libya, and Syria a bit more caution on war would seem to be in order.  

Finally there is the lesson of 1967.  If you’re bogged down in a war in Yemen, best to keep your head down with regard to further military adventures, particularly if the potential new adversary’s power is a multiple of the current adversary in Yemen.  

GN had another article earlier "Lack of Wisdom Prolonging Qatar Crisis".  The article referred to above is perhaps an exemplar of the headline.  

Expect more to come as I clear out from under a rather busy past three months.

2017 Middle East Investment Banking Fees -- Get out Your Microscopes

Researchers at Arqala University Help AA Find MENA IB Fees

AA had a moment of near total shock as I read the headline “Middle East investment banking fees total $912 billion in 2017” in the 10 January edition of AA’s newspaper of record the Gulf News.

Quite a change from 2016 or so it would seem. 

It only took the first paragraph to dash AA’s fervent hope for “investment bank fee riches” in MENA much less in Saudi Arabia to come crashing to the ground.   USD 912 billion quickly turned into USD 912 million. 

Thompson-Reuters estimate that global investment banking fees total some USD 104 billion in 2017.  MENA  fees  at USD 912 million are some 88 basis points of the total. 

AA’s point in writing this isn’t GN’s editing mistake, but rather to use it point out once again that in the grand scheme of matters financial MENA IB fees remain miniscule, more a rounding error that meaningful.  A hobby rather than a mainframe business.

Further Pressure on Qatar. Really?

When A Story Falls Through the Cracks, Who Catches It?

If you read Gulf News regularly, you’ll have seen their article on Fitch’s downgrade of Qatar’s long term sovereign risk rating to AA- “Qatar Faces Further Pressure as Fitch Downgrades Sovereign Rating”.  

Sounds grim, perhaps even "subdued" if we apply Indian standards. 

But when context is missing, AA is there to catch what’s fallen between the cracks or perhaps in this case deliberately dropped between the cracks given GN’s demonstrated past ability to quote press releases verbatim.

Fitch did indeed downgrade Qatar’s sovereign rating.

A couple of points.  

First, AA- is still investment grade. 

Second, within the GCC context, Qatar’s sovereign rating is certainly well within range of its neighbors.  Fitch ratings page here.

COUNTRY	RATING
Bahrain	BB+
Kuwait	AA
Oman	BBB
Qatar	AA-
Saudi Arabia	A+
UAE	AA

Earlier this year, Fitch downgraded KSA several notches in one go. The pressure must be intense if one applies GN standards.  As to Bahrain, if you don’t know, BB+ is non-investment grade.  

Third, regarding my comment about taking flawless dictation from press releases, here are some quotes that GN somehow omitted.  Fitch press release here.  AA comments in red boldface.  Other boldface to highlight key points.

At an expected 146% of GDP in 2017, Qatar's SNFA [sovereign net foreign assets] are well above the 'AA' median and are sufficient to finance two decades of fiscal deficits or to repay all the estimated external liabilities of GREs, banks, and the private sector (around 90% of GDP).  Qatar's SNFA are underpinned by the foreign assets held by the QIA. Specific figures on the size, returns and asset allocation of the QIA are not publicly disclosed, but we estimate that its foreign assets amounted to USD283 billion at end-2016. We expect QIA foreign assets to fall in 2017 as a result of draw-downs to support the banking sector, which may not be completely offset by the return on QIA assets.

And here's another.

Qatar has been able to restructure its supply chain and avoid major economic and social instability. We expect only a slight up-tick in inflation (to 4% in 2017 from 2.8% in 2016). Inflation was 0.2% yoy in July 2017 (4% for food). Imports dropped 40% in June, but we expect that this will be temporary. Ports in India and Oman have replaced Dubai's Jebel Ali as transhipment points for goods destined for Qatar. Significant stockpiles of construction materials are giving the government time to examine longer-term supply options even as deliveries from quarries in Iran and Oman continue. Qatar Airways' cargo capacity has been used to maintain supplies of food and other perishable goods.

When you factor all this in, and AA hopes you do, you may have a different view of Qatar’s current situation. (Note that caveat.)

Qatar Banking Sector: How "Grim" is Grim?

Sure Sounds Much Scarier Than Subdued

AA was in grave danger of slipping further into his monomania on Dana Gas, until Gulf News (Dubai) rode to his rescue with this timely 8 August article:  “Qatar banking system faces grim outlook as sanctions bite”.

“Grim outlook” sure sounds serious.  If Indian banks are facing “subdued” prospects, then Qatar has to be in even worse shape.   

The article’s argument appears based on the following: 

1. Moody’s has placed Qatar’s banking sector on ratings watch negative, a change from stable.  The other rating agencies have taken steps as well.  S&P bumped Qatar’s sovereign rating to AA-.  Fitch has placed Qatar’s AA sovereign rating on its watch list.  In case you don’t know, investment grade extends all the way to BBB- or Baa3. Qatar banks are more dependent on external funding than earlier. 

2. External funding may be withdrawn and the Qatar government’s ability to support its banks has weakened.

3. Qatar’s banks have a “lot” of cross border assets in the GCC and MENA.  AA isn't sure if this is a credit warning about these borrowers ability to repay or about government action to prevent payment.

4. Moody’s expects non-performing assets to increase from 1.7 % at FYE 2016 to 2.2% by FYE 2018. Moody’s also expects ROA to decline from 1.7% for fiscal 2016 to 1.4% for fiscal 2017.

GN’s assessment seems to be based on two things.

1. First, some negative things might occur, e.g., external funding withdrawal, ratings drop, etc. At its current rating Qatar could drop a notch or two and still comfortably be investment grade.  More importantly, things that might occur do not necessarily occur.  Or when they do, there may be solutions. Those with long memories or mentors who lived in exciting times will remember that when international banks cut off funding for the Kuwaiti-owned banks in Bahrain following the Iraqi invasion of Kuwait, the KIA rode to the rescue.   

2. Second, there is negative trend in two metrics:  ROA and ROE. It’s not clear to AA if GN believes that the change in NPA (a 30% increase) or ROA (an 18% decrease) is driving Qatar banks to “grim” territory or whether it is the absolute levels of these figures. 

Let’s put those metrics—ROA and NPLs— into context with a chart drawn from  pages 10-11 in the KPMG report on GCC 2016 banking performance. 

Two things to note about that report. 

• It covers listed banks and not all banks.  Despite the sample composition, the report should provide a directional idea about relative performance. 

• That presumably explains much if not all of the difference between KPMG’s figures and Moody’s who are including unlisted banks in their calculations. 

GCC Banking Performance
	ROA		NPL
Country	2015	2016	2015	2016
Bahrain	1.0%	1.1%	10.7%	9.8%
Kuwait	0.9%	1.1%	2.1%	2.1%
Oman	0.5%	0.8%	1.9%	2.0%
Qatar	1.8%	1.5%	1.7%	1.9%
Saudi	2.0%	1.7%	1.1%	1.3%
UAE	1.4%	1.3%	4.1%	4.0%

Based on the above data, it would seem that using GN’s definition things are at least somewhat grim in the UAE and even more so in Bahrain, Oman, and Kuwait. 

Perhaps, this is Qatar’s way of re-integrating itself into the GCC?

But there’s more. 

Notice that the chart in the GN’s story shows a decline in ROA since 2011 well before sanctions on Qatar had been “born” or had molars to bite, though this may be a testimony to the wise leadership's ability to position for necessary future action.

A January GN article quotes Moody's projections for GCC aggregated banking performance in 2017.  Using that projection as a baseline, it would appear that the "grim" Qatar banking sector will outperform the average GCC bank. 

As to the health of GCC country finances in a low energy price environment and thus their ability to support their local banking sector and economy, there’s a Fitch 5 April report that provides some insights. 

Based on its forecasts for the average 2017 oil price and country projected spending, among the GCC states only Kuwait (USD 45) and Qatar (USD 51) have a break-even price below Fitch’s estimated USD 52.50 barrel price for oil.  Kuwait’s break-even price was influenced by its “high investment income”. 

Bahrain is at USD 84, Oman at USD 75, KSA at USD 74, and Abu Dhabi at USD 60.   Details here. 

Mark AA as skeptical on GN’s assessment which seems more like foreign policy advocacy in search of a “victory” than hard analysis. 

It's a bit early to make a call on the effectiveness of sanctions or of Qatar's workarounds.

A grim scenario may occur, but Qatar has abundant resources to fight sanctions and at present retains access to world financial markets.  One could the case of other sanctioned countries with less financial resources or access to financial markets to draw some conclusions about ability to weather a storm.  Hufbauer et al "Economic Sanctions Reconsidered" may be a useful entry point to such a review.

There is is a more nuanced less alarmist view on Moody's report--as appears to be the usual case--at Abu Dhabi’s The National. No “biting” no scenarios of doom.

Misleading Report about UAE Central Bank “Changes” to AML Regulations

Another cold Dubai December and to top it off AA's Biggles' hat was at the cleaners.

If you’re like AA, you might have been confused when you read WAM’s 14 December 2016  (Arabic version here) article or others in the media that the Central Bank of the UAE had amended three paragraphs in Circular 24/2000.

Without any explanation or context provided, a reader might conclude that the CB UAE has only recently moved to prohibit the opening of numbered or anonymous accounts or require fairly standard CDD on customers. 

If you read the article in Gulf News yesterday, that's certainly the impression you'd get from the article's subtitle:  "New rule strictly prohibits the opening of accounts with assumed names or numbers, among others".

If true, this would represent a serious shortcoming in the UAE’s AML/CFT efforts.

However, it’s not the case. 

The 2000 Circular already contained such requirements.  Article 4 in that Circular is quite unequivocal, e.g. "يمنع منعا باتا فتح حسابات ".  The English version is similarly strict.

So what’s going on?

The three articles are being amended to permit reliance on UAE national ID cards as proof of an individual's identity.  The 2000 Circular only permitted the use of passports. 

Someone at WAM or CBUAE missed the bus by not including this information.

AA did not. 

Ever since the fateful day pictured above, AA has been doubly careful or at least tried to be.

Abu Dhabi Commercial Bank 3Q2016 Results: A Tale of Two Newspapers

Where Would We Be Without Ambition?

On 23 October Abu Dhabi Commercial Bank issued its interim unaudited financial statements. 

1. Net profit for the first nine months of the year was AED 3.2 billion versus AED 3.7 billion for the comparable period last year (a decline of 14%). 
2. Net profit for 3Q16 was AED 1.0 billion versus AED 1.2 billion for 3Q16 (a decline of roughly 17%). 
3. The major factor impacting net income was impairment provisions which increased from AED 391 million in the first nine months of 2015  to AED 1.083 for the first nine months of 2016 (an increase of 77% percent) and from AED 66 million in 3Q15 to AED 380 million for 3Q16 (an increase of 475%).

How did UAE’s two flagship English language newspapers cover this story?

The National’s 23 October headline was ADCB Net Profit Falls 17% in Third Quarter

Abu Dhabi Commercial Bank said its third-quarter profit slid by 17 per cent as provisions for bad loans jumped almost six-fold.

Net profit declined to Dh1 billion in the three months to the end of September versus Dh1.2bn in the same period last year, the bank said. Impairment allowances shot up to Dh380 million from Dh66m in the third quarter last year

Two days later Dubai’s Gulf News took a slightly more optimistic view:  ADCB Reports Dh999m in Q3 Profits Figure brings profit for first nine months to Dh3.14 billion.

Abu Dhabi: Abu Dhabi Commercial Bank (ADCB) continued to register growth in net loans and customer deposits in the first nine months of this year despite increased challenges in the banking industry.

“The bank delivered strong financial results for the nine month period of 2016, reporting a net profit Dh3.153 billion and an industry leading return on equity of 16 per cent.   

While the challenging operating environment and the turbulent markets have impacted the industry, our underlying performance and fundamentals remain strong and we continue to grow our businesses. Our balance sheet remains resilient and registered a healthy growth in net loans and customer deposits year to date, 10 per cent and 7 per cent respectively,” said Alaa Eraiqat, ADCB’s group chief executive officer.

In a statement, the CEO reiterated his confidence in the long-term growth of the UAE’s economy, stressing the bank’s strong fundamentals and outlook of delivering value to shareholders.

In the first nine months of this year, the bank’s assets grew 12 per cent to Dh255 billion, while net loans and advances to customers increased 10 per cent to Dh162 billion compared to December 31, 2015.”

Technical notes: 

1. AA’s calculations are based on net change not simply a division of this year’s results divided by last year’s. 
2. Gulf News appears to be using net income attributable to controlling equity holders in the bank not total net income.

What a difference a point of view makes. 

One comes away with two very different conclusions from reading these two articles.

1. Everything sounds just fine from the account in Gulf News. 
2. The National the “hometown” newspaper of ADCB with perhaps more at stake to  paint a rosy picture does not.  In AA’s view it presents a more accurate picture by providing comparatives to prior periods and discussing negatives as well as positives.

Another post to follow soon with comments on things to watch in ADCB's financials. 

Here's a link to the earlier promised post.