Wednesday, Aug 23, 2017

Dubai: Corporate earnings across the Gulf Cooperation Council (GCC) remained resilient in the first half of 2017, despite a decline in economic growth resulting from persistently low oil prices.

Data compiled by Kuwait Financial Centre (Markaz) showed that during the first six months of 2017 GCC corporates reported aggregate earnings of $33.26 billion (Dh122 billion), marginally down by 1 per cent compared to first half of 2015. On a sequential basis the results were up 15 per cent compared to the second half of 2016.

Saudi Arabia, Bahrain and Kuwait showed year on year improvement in earnings with growths of 7 per cent, 6 per cent and 2 per cent respectively. Saudi Arabia’s earnings growth was largely helped by the positive momentum in its non-oil private sector while Kuwait was largely helped by the positive performance in the commodities sector and its real estate sector.

The UAE’s first half 2017 corporate earnings performance was down by 2 per cent year on year, but on a sequential basis aggregate earning were up 152 per cent. While the banks reported a 1 per cent year on year increase in first half 2017 earnings, other major sectors of the economy, namely telecom and real estate posted 7 per cent and 37 per cent decline in earnings.

Slowing oil-led growth

Lower oil prices continued to persist, despite the efforts taken by the Opec cartel to reduce the supply glut. Brent crude declined by 9.3 per cent in the second quarter of 2017 closing at $47.92 compared to $52.83 at the end of the first quarter of 2017. Overall, Brent crude has tumbled 15.7 per cent from the start of 2017 making it the worst performing first half for oil since 1998.

Slowing economic growth resulting largely from slowing oil-led growth has impacted corporate performance. In its latest Regional Economic Outlook, the International Monetary Fund (IMF) expects GCC countries to experience lower economic growth in 2017. Real GDP growth in the UAE is forecast to slow to 1.5 per cent in 2017, down from 2.7 per cent last year, but is expected to recover to 4.4 per cent in 2018. Saudi Arabia is projected to see real GDP (gross domestic product) growth of 0.4 per cent this year, compared to 1.4 per cent last year, before rebounding to 1.3 per cent in 2018. While Qatar’s GDP growth is projected to exceed 3.4 per cent in 2017, the fund expects it to moderate to 2.8 per cent in 2018.

Lower oil prices also adversely impacted banks through lower deposits and loans growth. As a result of this, banking sector earnings have declined by 1 per cent during the first half of 2017 compared to the same period last year “Going forward, we expect GCC corporate earnings to expand by 8.1 per cent for the full year in 2017 based on stabilising oil prices and resilience in margins,” Markaz analysts said in a note.

Decline in earnings

While Saudi Arabia continued to lead corporate earnings with a 7 per cent year on year growth in the first half of the year, the kingdoms commodities and telecom sector witnessed 13 per cent and 12 per cent increase in its earnings respectively. Surprisingly, the banking sector witnessed a 2 per cent decline in earnings.

While Kuwait reported modest overall gains of 2 per cent in corporate earnings, banking sector suffered a 2 per cent decline in its earnings during the first half of 2017 owing to difficult credit situations and subdued growth in its local market. Omani corporates were the worst performers reporting 30 per cent lower earnings year on year in the first half of 2017, and on a sequential basis too, earnings were lower by 9 per cent compared to the second half of 2016.

All of the Qatar’s sectors with the exception of banking witnessed declines in their earnings during the first half of 2017. Telecom, Commodities and Financials witnessed a decline of 26 per cent, 32 per cent and 17 per cent respectively. Banking sector witnessed a 1 per cent increase in earnings. Qatar’s telecom sector was the worst performing sector as Ooredoo witnessed a 26 per cent decline in net profits while Vodafone Qatar is yet to turn profit since its inception.

By Babu Das Augustine Banking Editor

Gulf News 2017. All rights reserved.