SAUDI'S BANKS ARE BETTER
FITCH - Liquidity for Saudi Arabian banks has improved significantly since last year but the slowdown in the economy is likely to lead to a rise in non-performing loans (NPLs).
Most of the public-sector deposits that were drained from the banking system in 2016 in response to falling oil prices have since returned and the state has cleared the vast majority of its overdue payments to contractors. Most banks had liquidity coverage ratios above 200% at end-1H17, which we view as strong. Funding costs, which spiked during the 2016 tightening, have fallen back towards the very low levels to which most Saudi banks had become accustomed. Another wave of government deposit withdrawals is less likely now that Saudi Arabia is partly financing its fiscal deficit with international sovereign debt issuance.
But we expect a rise in the sector's NPL ratio and muted credit demand in the second half of 2017 and 2018, reflecting the slowing economy. GDP growth slowed to 1.4% in 2016 from 3.4% in 2015 and we expect it to be below 1% in 2017 and 2018. Most banks' internal rating assessments showed a decline in borrowers' creditworthiness in 2016 and 1H17 and there was a modest rise in the sector's NPL ratio in 1H17 to 1.4% of gross loans. However, this is very low by global standards and loan-loss coverage is strong (end-1H17: 180% across the banks we rate). Even factoring in delinquent loans that are not impaired, watch-listed exposures and restructured loans, we consider the sector's overall asset quality to be strong.
Earnings metrics for Saudi banks are solid by global standards, with a sector return on assets of 1.8% for 2016. However, credit growth has slowed and, as a result, earnings have plateaued for many banks and started to decline in some cases. We do not expect a significant improvement in credit growth for 2017 and there is a risk of a sector-wide earnings decline given the asset-quality pressures.
Saudi banks are among the best capitalised globally, with a sector Fitch Core Capital ratio of 17.2% at end-2016. Although higher impairment charges will affect capital ratios, slow loan growth and still-solid earnings should mean that sector capitalisation will continue to improve, with banks storing excess capital ready to deploy if and when the economy improves in the longer term.
The ratings of most of the 11 Saudi banks we rate are driven by their standalone credit profiles. Al Rajhi Bank, Banque Saudi Fransi, National Commercial Bank, Riyad Bank, SAMBA Financial Group and Saudi British Bank are rated the highest, at 'A-'. The smaller banks, whose ratings are driven by our expectation of a high probability of support from the Saudi authorities if needed, are rated 'BBB+'.
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PLATTS - For full-year 2017, South Korea's crude imports from its biggest supplier Saudi Arabia fell 1.7% to 319.02 million barrels, compared with 324.45 million barrels in the previous year, customs data showed. On the contrary, South Korea has imported 1.77 million mt, or around 13 million barrels, of crude from the US in 2017, about four times higher than in 2016. Shipments from Russia grew to 140,000 b/d last year from 112,000 b/d in 2016.
AOG - ADNOC’s 2030 strategy, he said, aims to capitalise on predicted global economic growth and demand for oil and petrochemical products, particularly in non-OECD countries. As its business responds to changing market dynamics, the company will continue to broaden its partnership base, strengthen its profitability, adapt to new realities and expand market access.
WNN - Under the terms of the assignment and purchase agreement it has signed with Nucleus and Brookfield, Toshiba will sell its rights to assert claims against Westinghouse related to the parent guarantees in the amount of $5.788 billion, and on account of other claims Toshiba holds against Westinghouse in the amount of $2.284 billion to Nucleus, for the sale price of $2.160 billion.
REUTERS - Brent crude futures LCOc1 were at $69.23 a barrel at 0808 GMT, up 8 cents from their last close, but down from a high of $69.37 earlier in the day. Brent on Monday rose to $70.37 a barrel, its highest since December 2014, the start of a three-year oil price slump. U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $63.84 a barrel, down from a high of $63.89 earlier, but up 11 cents from their last settlement. WTI hit $64.89 on Tuesday, also the highest since December 2014.