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Top UAE banks resilient despite profit fall

The first-half profit of the top 10 listed UAE banks declined at an average of 38.9 percent against their performance in the same period in 2019 as the overall net profit of 54 listed banks in the GCC plunged 34.7 percent to $12.3 billion from $18.8 billion year-on-year, a report by KPMG shows.

For UAE banks, the drop was mainly attributable to higher-than-expected credit losses on loans and advances, which increased by 125.8 percent on an average, compared to the previous year, and said the report.

“The quality of credit exposures of the UAE banks has also deteriorated, resulting in an increase in the non-performing loan ratio from 3.8 percent on 31 December, 2019, to 4.1 percent on 30 June 2020, for the UAE’s top banks,” said the report.

For GCC banks, total loan exposure in the first half rose by 3.2 percent to $1 trillion as on June 30 compared $0.9 trillion for the second half of 2019.

Abbas Basrai, partner and head of Financial Services at KPMG Lower Gulf, said the analysis shows that the UAE banking sector has remained resilient, despite a challenging operating environment and a drop in net profits from the top 10 listed banks.

“Stakeholders’ focus is shifting towards stability, solvency and liquidity. It remains to be seen whether this will trigger another wave of mergers and acquisitions in the region’s banking sector,” said Basrai.

According to Kamco Invest, the GCC banking sector recorded a historic decline in net profits during the second quarter of 2020. The impact of the Covid-19 pandemic was felt across GCC listed banks – excluding Bahraini banks due to lack of quarterly data – which saw the lowest net profits since the first quarter of 2012 at $4.3 billion. This was a quarter-on-quarter decline of 42.6 percent and a year-on-year decline of 53.2 percent, according to Kamco.

Moody’s expects weaker revenue and rising provisioning charges to push down UAE banks’ net profitability by more than 20 percent on average this year.

The KPMG report, titled GCC listed banks results – Six months ended 30 June 2020, analyses the published results of 54 listed banks in the GCC for the first half of 2020, against key performance indicators.

The report notes that the Central Bank of the UAE announced a broad range of support measures, including a $70 billion stimulus package to mitigate the impact of the pandemic, a big stimulus during a time when banks are facing an unprecedented demand for greater liquidity.

Saudi wealth fund eyes stake in Lulu

The $360 billion Saudi Arabian sovereign wealth fund, the Public Investment Fund, is in an advanced stage of concluding a deal to buy a minority stake in Lulu Group, following a $1.1 billion investment by an Abu Dhabi state fund in the retail and hospitality giant owned by Indian billionaire Yusuff Ali MA.

While both the PIF and Lulu sources declined to confirm the progress of the talks or the value of the proposed transaction or stake size, Lulu Group’s director of marketing and communications, V. Nandakumar, clarified that as a policy the retail major never comments on market speculations and media rumours.

“We always use our official communication channels to inform the media whenever there is any corporate update,” he said in an e-mailed statement.

Investment strategists said the interests shown by Gulf wealth funds in the fast-growing retail chain underscore the great levels of confidence the Lulu brand enjoys among global investors. Lulu Group, which enjoys a $7.4 billion turnover, has built an enviable track record of expansion not only in the Gulf’s booming retail landscape but also across several other countries over more than four decades.

Recently, state-owned Abu Dhabi Development Holding Co, also known as ADQ, invested $1.1 billion for an almost 20 percent stake in Lulu Group businesses excluding its Indian and Qatar operations. This money is being used to expand the Lulu businesses in new markets of Jordan, Iraq and Morocco, a Lulu source confirmed.

ADQ, which is headed by Sheikh Tahnoun bin Zayed Al Nahyan, is one of the biggest wealth funds in the region, having made significant investments in a diverse portfolio.

PIF, chaired by Saudi Arabia’s Crown Prince Mohammed bin Salman, has become a more active investor since 2015, taking a $3.5 billion stake in Uber Technologies and invested $45 billion in Softbank’s inaugural technology fund.

PIF invested $500 million in e-commerce venture Noon, which shortly afterwards began operations in Saudi Arabia. It also invested indirectly in the IPO of Saudi mall operator Arabian Centres. Recently, PIF was approached by Reliance Group of India for a stake sale in its retail arm.

Israel accord could bring new sparkle to Dubai diamond trade

The week that the UAE and Israel normalised ties, Israeli diamond trader Zvi Shimshi headed to the UAE to open a company in Dubai, a regional trade hub that is a major centre for the precious stones.

He is among 38 Israelis whom the Dubai Multi Commodities Centre (DMCC), home to the Dubai Diamond Exchange, said have recently contacted it to set up a presence, in a sign of how shifting regional politics could alter global trade dynamics.

Traders in Dubai say they have been inundated with enquiries from Israelis, who traditionally trade in Belgium’s Antwerp – the world’s biggest centre for traders of rough and polished diamonds.

South African company Trans Atlantic Gems Sales (TAGS), which auctions and tenders diamonds in Dubai, had close to 50 Israeli firms interested in participating in tenders register with the company in just a few weeks, said owner Anthony Peters.

“It’s a massive game-changer,” Peters told Reuters.

UAE unemployment rate among lowest in the world

The number of employed people in the UAE accounted for 97.8 percent of the country’s working age population by the end of 2019, figures by the The Federal Competitiveness and Statistics Authority (FCSA) have shown. The FCSA said this indicates that the majority of the total population are engaged in economically productive activities.

The number of workforce was 7.388 million in the reference year, a growth of 2.2 percent from 7.225 million in 2018, according to the study, which estimated the unemployment rate at 2.2 percent, which is among the lowest on record worldwide.

The working-age population accounts for 82 percent of the country’s total population, with women accounting for 58 percent of the workforce in 2019, up from 52.7 percent in 2018, said the study.

For women, the unemployment rate declined from 5.9 percent in 2018 to 5.1 percent in 2019, while employment rose from 94.1 pct to 94.9 during the reference period.

Air ticket rates from Dubai to India drop

Airfare to the most prominent destinations in India have dropped to half of what they were going for during the repatriation flights. A ticket to Mumbai, Bengaluru or Kochi can be had for Dh300-Dh500 according to indicative rates with travel agencies, as against the Dh1,300-Dh1,500 they commanded just weeks ago.

“Fares on India-bound routes have reduced due to the higher frequency of flights,” said a spokesperson for Shams Abu Dhabi, the travel agency. India is operating 270 repatriation – or Vande Bharat – flights from the UAE all through this month.

At the same time, most of the Indian states have dialed down on the requirements that passengers need to go through as part of the safety protocol measures. With the exception of Tamil Nadu and West Bengal, no other state now requires a PCR test on arrival.

But one thing is for sure– despite the slashing of rates, demand remains in a downtrend. “Dubai-India routes are pretty slim pickings [now],” said Saj Ahmad, Chief Analyst at StrategicAero Research. This is also “partly because of India’s inability to control the spread of COVID-19.”

Interestingly, jobseekers are once again apparent on this sector after a near six-month absence.

“People from India have started to come again to look for jobs,” said a spokesperson for Dubai-based Happy Trip. “Relaxation of COVID-19 rules in Dubai and India has helped,” he added.

Not just Dubai, other emirates too are taking steps to encourage demand for travel. The Department of Civil Aviation in Ras Al Khaimah has announced that expat residents will soon be allowed to enter via Ras Al Khaimah International Airport from October 15, without obtaining prior permission from authorities.

 

First-time realty buyers return to Dubai market

First-time property buyers have entered the Dubai housing market in a significant manner as increased long-term confidence in Dubai, lower mortgage rates, higher loan-to-value ratio and discounted prices have added to market sentiment.

“A significant decline in new project launches has helped maintain off-plan sales numbers at decent levels with a supply reduction, and the volumes are gradually starting to improve as discounted properties and increased long-term confidence in Dubai attract more prospective buyers,” said Rabiah Shaikh, principal partner at Square Yards.

“In terms of sizes, upgrades are in vogue. On an average, property prices in Dubai are 25 percent to 30 percent lesser than their peak, so we are seeing buyers who are giving up their leases on existing properties to purchase larger properties in other areas, helped by discounted prices and the fact that a larger asset adds more equity to their portfolios. Simply put, prices are attractive for those who desire more space and more long-term capital value,” added Shaikh.

The largest price drops in apartments happened in Discovery Gardens and Motor City, both seeing a drop of over five percent from the previous quarter, indicating tepid demand. However, places like Greens, Business Bay and Dubai Marina held on to steady pricing with an average of 0.5 to 1 percent price corrections, presenting a bullet proof investment case to prospective property buyers, who continue to invest in these micro markets.

Khurram Shroff, chairman of IBC Group and Gallery Suites, said: “We are seeing a steady rise in the number of first time buyers, as people move to outright ownership, from rental arrangements. Once again, this is partly due to the fact that people want to share fewer amenities with others, in the wake of the pandemic, and partly because of a lowering of prices. I see long-term resilience in these trends. Had there been a lack of confidence around Dubai’s capacity to deal with the after-effects of Covid-19, we may have only witnessed people taking advantage of rent depreciation. The fact that a rise in first time home ownership – already a trend prior to the pandemic – has continued, is testament to the faith that Dubai’s residents have in the administration.”

Property in Dubai continues to be in demand as residents are moving to more spacious and affordable properties. Factors like abundant supply and wider choices with more amenities are attributed to this trend.

“The outlook has remained stable in Dubai. When you look at the real estate industry worldwide, Dubai remains the safest place to invest in because of how it has been structured. With the continuous efforts of the government of UAE under the leadership of its visionary leaders, Dubai’s real estate market has been well-regulated, making it very appealing to investors from across the world, and therefore, converting it into the world of opportunities,” said Atif Rahman, director and partner at Danube properties.

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