The healthy signs of grow­ing mo­men­tum

GCC gov­ern­ments are play­ing a lead­ing role in boost­ing eco­nomic growth and in­vestor con­fi­dencew

Arabian Business English - - 2019 PREDICTIONS BANKING AND FINANCE - By Nadi Bar­gouti, MANAG­ING DIREC­TOR, HEAD OF AS­SET MAN­AGE­MENT, EMI­RATES IN­VEST­MENT BANK

IN A PE­RIOD OF IN­CREAS­ING in­ter­est rates and sta­ble oil prices, the GCC econ­omy has al­ready started see­ing signs of im­prov­ing dy­nam­ics that are driv­ing mo­men­tum in its mar­kets. As the geopo­lit­i­cal si­t­u­a­tion re­mains a con­cern, weigh­ing on in­vestors’ minds, these im­prov­ing dy­nam­ics can help off­set the im­pact of the chal­leng­ing geopo­lit­i­cal back­drop, and drive in­vestor sen­ti­ment as we en­ter 2019.

If we look at the bank­ing sec­tor for in­stance, higher in­ter­est rates, to­gether with lower pro­vi­sions in line with reg­u­la­tory re­quire­ments, have cre­ated a favourable en­vi­ron­ment for banks to de­liver a ro­bust per­for­mance in 2018. This helped UAE banks to de­liver pos­i­tive growth dur­ing the year, and this was par­tic­u­larly valid for the Abu Dhabi stock mar­ket, which saw a 1.8 per­cent in­crease in year-on-year earn­ings in Q3. In fact, Abu Dhabi banks saw a healthy growth in earn­ings in Q3 of 10.5 per­cent over the same pe­riod last year whereas Dubai banks en­joyed an

8.5 per­cent growth over the same pe­riod. As in­ter­est rates are ex­pected to con­tinue to in­crease through 2019, this pos­i­tive mo­men­tum is here to stay.

On the other hand, the out­look for the real es­tate sec­tor is much more mixed. We are see­ing a num­ber of pos­i­tive de­vel­op­ments in the sec­tor that should the­o­ret­i­cally im­prove per­for­mance, such as de­creas­ing prop­erty prices as well as at­trac­tive in­cen­tives of­fered by lo­cal de­vel­op­ers to make real es­tate in­vest­ment more af­ford­able. How­ever, as sup­ply con­tin­ues to sur­pass de­mand and in­ter­est rates con­tinue their up­ward tra­jec­tory, real es­tate re­cov­ery is not ex­pected in the near term. In­stead, we may witness a pe­riod of con­sol­i­da­tion where prices sta­bilise for some time be­fore they start in­creas­ing again. Higher in­ter­est rates, re­sult­ing in higher mort­gage rates, com­bined with rel­a­tively high mort­gage orig­i­na­tion fees charged by lend­ing in­sti­tu­tions are ex­tra hur­dles in­vestors need to con­sider prior to mak­ing an in­vest­ment.

A pos­i­tive phe­nom­e­non is the healthy M&A ac­tiv­ity in the MENA in gen­eral and the GCC in par­tic­u­lar. M&A ac­tiv­i­ties have to­taled over $10bn this year, a 3 per­cent in­crease over last year. The GCC bank­ing sec­tor is al­ready see­ing an in­creas­ing level of con­sol­i­da­tion that is cre­at­ing syn­er­gies and health­ier, leaner and more ef­fi­cient banks in a highly com­pet­i­tive mar­ket. This is par­tic­u­larly true in a re­gion that has been his­tor­i­cally over banked. Fol­low­ing the com­ple­tion of Na­tional Bank of Abu Dhabi and First Gulf Bank’s merger this year, more con­sol­i­da­tions are ex­pected to take place, with early merger talks al­ready an­nounced (or ru­moured) by Abu Dhabi Com­mer­cial Bank, Union Na­tional Bank and Al Hi­lal Bank in the UAE, Bank of Sharjah and In­vest Bank also in the UAE, Saudi Bri­tish Bank and Alawwal Bank in Saudi Ara­bia and by Oman Arab Bank SAOC and Al­izz Is­lamic Bank SAOG in Oman.

This healthy trend is not lim­ited to the bank­ing sec­tor as we have also seen an in­crease in M&A ac­tiv­ity in the sec­tors of health­care, ed­u­ca­tion and tech­nol­ogy. This trend is ex­pected to stay in 2019, and as these sec­tors con­tinue to at­tract for­eign di­rect in­vest­ment (FDI) and re­main a key area of fo­cus for re­gional gov­ern­ments, fur­ther growth is ex­pected in the com­ing year.

In fact, GCC gov­ern­ments are play­ing a grow­ing role in stim­u­lat­ing eco­nomic growth and boost­ing in­vestor con­fi­dence in re­gional mar­kets. As an emerg­ing sec­tor for the re­gion, tech­nol­ogy has been at the top of gov­ern­ments’ agen­das and a broad range of ini­tia­tives and in­cu­ba­tors have been put in place to sup­port its growth and help nur­ture and at­tract tech ta­lent into the re­gion. Though it is not overly vis­i­ble just yet, in­vest­ing in tech­nol­ogy has picked up in the past 18 to 24 months and is ex­pected to at­tract more in­ter­est and sup­port in 2019 – and well be­yond into the fu­ture.

GCC GOV­ERN­MENTS ARE PLAY­ING A GROW­ING ROLE IN STIM­U­LAT­ING ECO­NOMIC GROWTH” AS AN EMERG­ING SEC­TOR FOR THE RE­GION, TECH­NOL­OGY HAS BEEN AT THE TOP OF AGEN­DAS”

Healthy The re­gion saw a pos­i­tive trend of M&A ac­tiv­ity last year

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