Regional Unrest Has Impacted GCC Financial Markets In 1Q11, Says Saudi NCB

Regional Unrest Has Impacted GCC Financial Markets In 1Q11, Says Saudi NCB

Regional unrest has affected the trends of GCC financial markets in 1Q11 and caused recurrent anxiety about the strength of the global recovery, according to Saudi NCB. In its latest GCC Financial Market Quarterly, the bank observed: “The expectations of a pick-up in bank lending have failed to materialize in the GCC and the regional political crisis has once again amplified the pervasive risk aversion that has characterized bank – as well as customer – behavior during the crisis.”

The report said that differentiation across the region is growing. Increasingly steady expansion in Qatar, Saudi Arabia, and Oman contrasts with general stagnation in the rest of the region. Bank credit rose in Qatar by 14.1% during December 2010 to February 2011. “However, the pace of increase in the private sector lagged public sector credit and rose by a more modest annualized 6.6% to QR196.6bn ($53.99bn) in February 2011,” according to the study. In Saudi Arabia, overall lending in 1Q11 was 5.6% ahead of the corresponding period a year earlier. Private sector credit increased by a somewhat faster 6.0% and attained SR763.9bn ($203.7bn) in March. “Credit to the public sector has in fact turned negative and fell by an annualized 3.9% in 1Q11,” said NCB. Bank lending to the government sector credit stood at SR29.3bn ($7.81bn) in March. Bank credit growth in Oman has been among the highest in the region, with an 8.2% increase from the period between December 2009-February 2010 and the corresponding period a year later. “Oman saw one of the fastest increases in bank lending to the government and to other public sector entities, which jumped by a remarkable 49.3% year-on-year between our two reference quarters,” noted NCB. Bahrain has struggled more than its regional peers to get a sustained recovery in bank credit underway. “Overall, bank credit contracted by 0.5% between the December 2009-February 2010 period and the quarter leading up to February 2011,” it added.

According to the report, the regional turmoil came as a rude shock to the IPO market, taking issuance from already modest to almost insignificant levels. Several IPOs announced for the first quarter ended up being deferred in the uncertain environment. By contrast, the quarter saw some capital increases by currently listed companies. In Saudi Arabia, five listed companies raised additional capital. “The sharp reversal in regional IPO activity reflects an established pattern of volatility,” maintained NCB. However, even the peaks of recent quarterly issuance have been modest by historical standards and tended to rely heavily on either mandatory or government-sponsored issues, noted the report. Nonetheless, interest in IPOs is once again showing signs of developing traction. “In a new development preceding the regional political crisis, a number of GCC issuers, for instance Dana Gas, have expressed interest in a London listing,” said NCB. Even as most regional equity markets have recovered broadly speaking to their pre-crisis levels, recent trends in market volumes have been even more encouraging.

In spite of the mixed progress of the regional bond and sukuk markets, near to medium term issuance activity is likely to remain fairly strong, not least due to substantial refinancing requirements in the coming years, maintained NCB. “This follows an estimated $85bn of annual new debt issuance in the Gulf countries since 2007,” it added. According to NCB, regional issuers will once again seize opportunities offered by more favorable market conditions once the situation normalizes. Sukuk and bonds are also being increasingly considered for debt restructuring purposes (eg Nakheel). Syndicated loan volumes rebounded during 1Q11. “Private equityactivity remained subdued, continuing the lackluster pattern seen since the onset of the global economic crisis,” continued the report. As alternative sources of capital were affected by market nervousness, regional governments responded to the political turmoil through additional fiscal stimulus measures. All the GCC governments have to varying degrees responded to the new global and regional economic realities by boosting spending. “Under the circumstances, regional governments are in a position to fill much of the void in capital requirement,” concluded NCB.

Copyright MEES 2011.