Here is a selection of Arab banking news stories that we have been following recently. Bank M&A in the Gulf, Blom's successful capital increase and the British government's second sovereign sukuk.
Here are some of the stories that we have been following
- 16th, October, 2019
Kuwait Finance House and Ahli United Bank move closer to merger
Kuwait Finance House (KFH) has received conditional approval from the Central Bank of Kuwait to acquire Bahrain-based Ahli United Bank, and on 14 October KFH’s Board of Directors agreed to call a General Assembly to consider the acquisition.
The two banks have been in merger talks for more than a year, but it is expected that a deal will be struck by the end of 2019, marking the first significant cross border bank merger in the GCC. In recent years, there have been several mergers of banks within the same country, and some cross-border acquisitions of small banks by larger banks, but the KFH/Ahli deal will be the first time that banks from different GCC countries have merged.
KFH is bigger than Ahli United – about $7bn in equity compared to about $5 bn – and the deal is being structured as an acquisition of Ahli by KFH. Nonetheless, the two banks have complementary franchises that will give the merged institution far greater reach than either had on its own. KFH is the second largest bank in Kuwait and has significant operations in Turkey and Malaysia. Ahli United is the biggest bank in Bahrain and has significant operations in London and in Egypt. (It also has a subsidiary in Kuwait that, like KFH, operates on a Shari’ah-compliant basis.)
Fitch cuts Saudi Arabia’s credit rating to A
Fitch downgraded Saudi Arabia by one notch from A+ to A on 30 September and took a similar action on the rating of Saudi Aramco on 7 October.
Fitch’s press release said that the downgrade of Saudi Arabia reflected rising geopolitical and military tensions in the Gulf region, Fitch’s revised assessment of the vulnerability of Saudi Arabia’s economic infrastructure, and continued deterioration in Saudi Arabia’s fiscal and external balance sheets.
The downgrade came two weeks after the drone attacks on Saudi Arabia’s oil processing facilities at Abqaiq on its eastern coast.
Fitch’s view, as expressed in the press release, is that Saudi Arabia is vulnerable to escalating tensions in the Gulf due to its prominent foreign policy stance, including its close alignment with US policy on Iran and its continued involvement in the war in Yemen.
Fitch is predicting a widening fiscal deficit for 2019 due to a loosening of fiscal policy and lower oil prices and production. Fitch estimates that Saudi Arabia needs a price of around $ 82/B, for Brent crude oil to balance its fiscal budget.
The downgrade of Saudi Aramco was a direct result of the downgrade of the sovereign rating. Fitch maintained Saudi Aramco’s stand-alone rating of aa+.
Moody’s rates Saudi Arabia at A1, which is one notch above the new Fitch rating. Moody’s downgraded Saudi Arabia from Aa3 to A1 in May 2016 and has not changed the rating since then.
S&P rates Saudi Arabia at A-, which is one note below the new Fitch rating. S&P downgraded Saudi Arabia by two notches to A- from A+ in February 2016, having downgraded by one notch, from AA- in October 2015.
All three agencies maintain ratings in the AA range for Kuwait, Abu Dhabi and Qatar
SAMA instructs banks to hire more Saudi nationals
The Saudi Arabian Monetary Agency (SAMA, the Monetary Authority and Bank Regulatory Authority) has instructed Saudi banks to hire more local citizens, as opposed to expatriates. London-based Arabic newspaper Al-Sharq Al-Awsat reported that banks have been given three months to produce a list of jobs that can be ‘localised’. Al-Sharq Al-Awsat said that Saudi citizens currently account for 86% of employees in Saudi banks.
Riad Salamé seeks to reassure depositors on dollar availability
Riad Salamé, the Governor of the Central Bank of Lebanon, sought to reassure depositors that they would have access to dollars, amid reports that some banks’ ATMs had stopped dispensing foreign currency.
Speaking on 23 September, Salamé said that measures taken in ATMs were due to decisions taken by individual banks [that is, lack of dollars was not the result of instructions emanating from the central bank]; that dollars were still available through most ATMs, although perhaps not all; and that in cases where dollars could not be withdrawn from a bank’s ATMs, customers would be able to withdraw them at the bank’s counter.
There has been a lot of speculation recently that the Lebanese government may not be able to meet debt repayments falling due over the next few months. Fitch downgraded Lebanon to CCC on 23 August. Moody’s and S&P rate Lebanon at B-. One of Fitch’s concerns was that the central bank’s ability to attract dollars from the commercial banking system – to fund government needs – was becoming more strained.
UAE lifts Lebanese travel ban
On 7 October, the United Arab Emirates lifted a travel ban on its citizens visiting Lebanon. The ban had been imposed in February 2016. In February this year, the Saudi government lifted a travel ban that it had imposed in November 2017.
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