Oil Updates – prices rise as investors look for signs US rate cuts to begin
Updated 22 July 2024
Reuters
TOKYO: Oil prices rose in early trade on Monday as investors keep a lookout for signs of a rate-cut cycle expected to begin as soon as September, according to Reuters.
Brent crude prices were up 48 cents, or 0.57 percent, at $83.10 a barrel by 2:35 a.m. Saudi time, and US West Texas Intermediate crude futures rose 42 cents, or 0.52 percent, to $80.55.
“Since the June FOMC meeting, inflation and labor market data have signalled that disinflation and labor market rebalancing are in place, which we expect will allow the Fed to begin its interest rate cutting cycle in September,” ANZ Research said in a note.
The US Federal Reserve will next hold a Federal Open Market Committee meeting on interest rates on July 30-31, at which investors expect the Fed to keep the rates unchanged, while looking for any signal of a cut coming later in the year.
On the political front, US President Joe Biden abandoned his reelection bid on Sunday under pressure from fellow Democrats and endorsed Vice President Kamala Harris as the party’s candidate to face Republican Donald Trump in November.
Slower-than-expected economic growth of 4.7 percent for China in the second quarter sparked concerns last week over the country’s demand for oil and continues to weigh on prices.
On Sunday, China released a policy document outlining known ambitions, from developing advanced industries to improving the business environment, with analysts spotting no sign of imminent structural shifts in the world’s second-biggest economy.
The 60-point document’s publication follows last week’s closed-door meeting of the Communist Party’s Central Committee that takes place roughly every five years.
Analysis: Riad Salameh arrest – turning point for Lebanon or strategic maneuver by its former central bank governor?
Updated 35 sec ago
reina takla
RIYADH: The arrest of Riad Salameh, Lebanon’s former central bank governor, has sent shockwaves through Lebanon’s financial and political spheres.
After over a year of intense scrutiny and numerous allegations of financial misconduct, Salameh’s apprehension is being closely analyzed from multiple perspectives.
Some believe his arrest might be an attempt to deflect attention from systemic failures within Lebanon’s financial sector, while others regard the arrest as a significant development. Many hold both views.
One banker, who chose to remain anonymous, provided a nuanced interpretation of the situation when speaking to Arab News.
“My initial reaction is that the government is seeking a scapegoat to avoid taking responsibility for the financial crash,” he said.
Despite this, he acknowledged that Salameh was not entirely blameless.
The banker expressed skepticism about the effectiveness of the Lebanese judiciary in tackling high-profile financial crimes.
“The Lebanese judiciary lacks impartiality,” he stated. “Their attempts to bring criminals to justice have been ineffective, and the judges’ lack of experience in financial investigations is significant.”
He also questioned the credibility of seeing the arrest as a gesture toward international bodies like the Financial Action Task Force and the International Monetary Fund.
“I don’t believe this will help,” he said, referring to Lebanon’s tarnished reputation due to inaction.
His concern reflects a broader skepticism about whether the arrest will lead to substantive reforms or merely serve as a symbolic act.
On the topic of investor confidence, the banker was pessimistic. He argued that the damage to Lebanon’s financial system had already been done and meaningful changes are needed to ensure a true recovery.
“Politicians need to take responsibility and move forward, even if it means making difficult decisions,” he said.
The entrance of Lebanon's central bank in March 2023, covered in graffiti by protesters over the liquidity crisis which started in 2019. Shutterstock
While Lebanon’s central bank is supposed to be an independent organization, the banker highlighted that the governor’s tenure was marked by a preoccupation with political decisions rather than focusing on the financial management crucial to the institution.
This raises a critical question: Is Salameh solely to blame for Lebanon’s financial turmoil, or is he just one component in a much larger system of mismanagement and corruption?
According to the banker, the situation reflects a broader systemic issue.
“The simple words to describe this are mismanagement and corruption to the highest level,” he said, adding: “The irony is that it hasn’t really stopped.”
This perspective suggests that while Salameh’s arrest might address one aspect of the crisis, it does not tackle the deep-seated issues that have plagued Lebanon’s financial and political systems for years.
George Kanaan, honorary chairman of the Arab Bankers Association, echoed some of the sentiments expressed by the anonymous banker but also provided a critical perspective on Salameh’s alleged misconduct.
Kanaan expressed a clear stance on the matter, and said:: “I think he deserves to be in jail, and I think he has clearly committed theft.”
He lamented that the more substantial issue of financial mismanagement, which he believes is not prosecutable, is overshadowed by Salameh’s individual actions.
Another anonymous banker provided a detailed analysis of the political context surrounding Salameh’s arrest, suggesting several possible scenarios that could explain the timing and nature of this high-profile event.
He posited that Salameh’s arrest might be linked to broader political maneuvers and speculated on three primary scenarios.
Firstly, the banker suggested that Salameh’s arrest might be part of a larger political deal, potentially positioning him as a scapegoat for the pervasive corruption among Lebanese politicians. “His arrest might be part of a broader political deal,” he said.
This theory hinges on the idea that Salameh could be sacrificed to placate public outrage and international pressure, thereby protecting other, more powerful figures who may be equally or more culpable.
The banker pointed out that Ali Ibrahim, the financial prosecutor of Beirut — who is reportedly a protégé of the country’s prime minister Nabih Berri — has just pressed charges of fraud and money laundering against Salameh.
Berri was once one of Salameh’s major protectors, which adds a layer of complexity to the current political dynamics.
Another scenario proposed is that Salameh might have felt personally endangered and decided to turn himself in as a form of self-preservation.
The banker highlighted that Salameh had been publicly summoned over the past 13 months but had consistently failed to attend hearings.
His arrest, surrounded by high levels of secrecy and occurring without the presence of his legal team, could indicate that he feels safer in jail.
“He might be feeling endangered due to threats, and he decided to turn himself in so he would be protected behind cell bars,” he noted.
The third scenario was that Salameh’s arrest could be a prelude to a future clearing of his name.
According to this view, the arrest might be part of a strategy to demonstrate that the Lebanese judiciary is taking significant actions against high-profile figures.
If Salameh is eventually declared innocent, it could imply that the Lebanese judiciary system has conducted a thorough investigation and that Salameh’s arrest was a procedural step rather than an indictment of his guilt.
“He was arrested to be cleared and declared innocent at a later stage,” the banker suggested.
This would signal that the judiciary is making a concerted effort to address corruption, albeit in a way that ultimately exonerates Salameh.
The banker emphasized that Salameh’s role as the central figure in Lebanon’s financial system adds considerable weight to these scenarios.
“He is the secret keeper of all the financial transactions that happened in Lebanon,” he said, underscoring the pivotal role Salameh played in managing and orchestrating financial dealings.
His deep involvement in the financial system and knowledge of sensitive transactions make him a key figure in understanding Lebanon’s financial mismanagement, which further complicates the political and legal landscape surrounding his arrest.
Legal analysis: implications and challenges
Jihad Chidiac, a Lebanon-based attorney, said the country was “positively surprised” by the arrest, but raised questions about its broader implications.
He noted that Salameh’s prosecution in Lebanon could potentially preclude further international legal actions due to the principle of non bis in idem, or double jeopardy.
Lebanon-based attorney Jihad Chidiac. File
Chidiac highlighted the significance of the arrest in the context of Lebanese judicial capacity, saying: “Riad Salameh’s arrest represents a crucial step toward accountability of high-profile figures for alleged financial crimes.”
He also addressed the potential for the arrest to influence Lebanon’s relationship with international bodies.
According to the attorney, the arrest could be a strategic move to align with international expectations and potentially improve Lebanon’s standing with the FATF and IMF.
However, he cautioned that the arrest alone might not significantly advance Lebanon’s negotiations with these bodies, given the slow progress on reforms.
Chidiac expressed concerns about the broader impact of Salameh’s arrest on corruption and financial mismanagement in Lebanon. “Addressing these systemic problems will require a more comprehensive and sustained approach,” he said, emphasizing the need for effective legal actions and institutional reforms.
The attorney emphasized that while this case sets a new precedent — given that no other high-ranking figures have faced similar legal actions before — the eventual outcome remains uncertain.
He highlighted the concern that if Salameh were to disclose crucial information, it could potentially jeopardize a large number of public and prominent figures.
This adds an extra dimension to the case, as the ramifications of his revelations could be far-reaching.
“The possibility of such disclosures raises significant concerns about the stability of Lebanon’s political and financial institutions, and how they might react to protect themselves from further exposure,” Chidiac explained.
As Lebanon grapples with these developments, the effectiveness of the judiciary in handling such high-profile cases will be closely watched.
It could serve as a litmus test for the country’s commitment to tackling corruption and restoring public trust in its institutions.
The coming days will be crucial in determining whether this arrest will lead to meaningful reform or merely serve as a symbolic gesture.
Closing Bell: Saudi Arabia’s TASI concludes in red, drops to 12,128 points
Nomu parallel market ended at 25,946.20, marking a decrease of 98.75 points, or 0.38%
MSCI Tadawul also dropped by 5.55 points, or 0.37%, ending at 1,511.82
Updated 16 min 13 sec ago
Nour El-Shaeri
RIYADH: Saudi Arabia’s Tadawul All Share Index closed Wednesday’s trading at 12,128.14 points, recording a drop of 52.23 points or 0.43 percent.
The Nomu parallel market ended at 25,946.20, marking a decrease of 98.75 points, or 0.38 percent.
The MSCI Tadawul also dropped by 5.55 points, or 0.37 percent, ending Wednesday’s session at 1,511.82.
By the end of trading, TASI recorded a trade value of SR7.4 billion ($1.9 billion), with 46 stocks advancing and 180 declining. In contrast, Nomu had a trading volume of SR32.8 million.
In TASI, Saudi Fisheries Co. stood out as the leading performer, registering a surge of 9.92 percent and closing at SR24.38. This comes on the heels of the company’s latest appointment of a new chairman and vice chairman of the board.
Al-Baha Investment and Development Co. ended on a positive note with a growth of 7.69 percent, settling at SR0.14.
Another notable performer, Saudi Steel Pipe Co. observed a 5.92 percent rise, concluding its trading at SR76.90. The National Co. for Glass Industries and Wataniya Insurance Co. also performed well, both rising by 4.33 percent to end at SR51.80 and SR32.50, respectively.
Alistithmar AREIC Diversified REIT Fund experienced the most significant drop, plunging by 5 percent to SR9.50.
Shares of AlAhli REIT Fund 1 and Knowledge Economic City followed suit, declining to SR7.85 and SR15.38, translating to a dip of 3.33 percent and 3.27 percent, respectively.
Americana Restaurants International PLC and Amlak International Finance Co. also reported downturns.
In Nomu, Al Ashghal Al Moysra Co. was the top performer, reaching SR57, an increase of 8.16 percent.
Leaf Global Environmental Services Co., Mohammed Hasan AlNaqool Sons Co., and Alhasoob Co. were also among the top gainers clinching 7.69, 6.19, and 4.63 percent changes to close at SR70, SR36.90, and SR52, respectively.
Advance International Co. for Communication and Information Technology also closed the day in green with SR5, an increase of 4.17 percent.
Natural Gas Distribution Co. was the worst performer on Nomu, closing at SR43.70, a 10.45 percent drop.
Al Rashid Industrial Co. and Naba Alsaha Medical Services Co. followed suit dropping by 6.14 and 4.95 percent to close at SR38.95 and SR90.30, respectively.
MOBI Industry Co. and Sure Global Tech Co. were also among Nomu’s worst performers.
Saudi Arabia’s technology sector could gain $4bn from GenAI by 2028: report
Kingdom will host the third Global AI Summit in Riyadh from Sept. 10 to 12
Media and entertainment sector in Saudi Arabia is projected to achieve a 14 percentage point margin growth by 2028
Updated 04 September 2024
Nirmal Narayanan
RIYADH: Saudi Arabia’s technology sector could see an increase in operating profit of SR15 billion ($4 billion) by 2028 with the adoption of generative artificial intelligence, a new report showed.
Strategy& Middle East’s analysis suggests that a 15 percentage point margin growth is attainable if tech companies develop and commercialize new GenAI use cases and meet the demand for advanced hardware and infrastructure.
Aligned with its Vision 2030 goals, Saudi Arabia aims to position itself as a regional technological hub. The Saudi Data & AI Authority, established in 2019, is driving this agenda to elevate the Kingdom as a global leader in data-driven economies.
The Kingdom will host the third Global AI Summit in Riyadh from Sept. 10 to 12, focusing on ethical AI development and its applications in various sectors, including transportation, urban design, mental health, and resource management.
Hani Zein, partner with Strategy& Middle East, said: “Advancements in GenAI are expected to impact all sectors in Saudi Arabia. Our analysis indicates that the telecom, media and entertainment, and technology sectors could achieve the highest potential margin upside by adopting GenAI.”
He added: “This presents a prime opportunity for companies to reassess their strategies and explore new avenues for growth and innovation.”
The report highlights that GenAI will enhance R&D capabilities, streamline solution design, and automate the lead-to-cash lifecycle for tech firms, potentially reducing costs by up to 30 percent.
“These efforts can help to accelerate the development of local intellectual property and solidify Saudi Arabia’s position as a hub for national tech champions. GenAI can be the essential catalyst in accelerating this transformation, creating major growth opportunities, and enhancing internal capabilities,” said Fawaz BouAlwan, partner with Strategy& Middle East.
The analysis added that the media and entertainment sector in Saudi Arabia is projected to achieve a 14 percentage point margin growth by 2028, increasing its operating profit by up to SR6 billion.
The report underscores GenAI’s potential to boost original Arabic content creation, hyper-personalize customer experiences, and enhance operational capabilities.
“With an advertising spending per capita of just up to SR240 in Saudi Arabia, the research also suggests there is considerable potential to better monetize their customer base. This would further accelerate the transformation of the Kingdom as a media and entertainment hub, aligned with its national agenda,” added the report.
Additionally, the telecom sector is expected to achieve a 12 percentage point margin growth by 2028, raising operating profit by up to SR11 billion.
The report added that GenAI is anticipated to help telecom operators differentiate themselves and navigate challenges related to monetization and price wars.
“To successfully embrace GenAI, companies must adopt a value-driven approach that delivers tangible benefits beyond technological innovation. This begins with synchronizing GenAI initiatives to business goals, performing thorough cost-benefit analyzes, and driving operational readiness throughout the organization,” said Ali Ghaddar, principal with Strategy& Middle East.
He emphasized the importance of a phased rollout, governed by strong operational guardrails and precise measurement, for successful implementation.
24 Fintech Day 2: Experts highlight Saudi Arabia’s unique role in shaping industry’s future
Updated 36 min 20 sec ago
MANAL AL-BARAKATI Hajar AlQusayer
RIYADH: On the second day of the 24 Fintech conference in Riyadh, experts and industry leaders took to the stage to discuss Saudi Arabia’s growing prominence in the global digital landscape.
With an audience of investors, regulators, and innovators, panel discussions throughout the day highlighted the Kingdom’s rapid transformation into a fintech powerhouse, driven by technological innovation and regulatory support under Vision 2030.
This progress is part of a broader movement that has seen Saudi Arabia attract $1.84 billion in venture capital investments since 2018, with 216 fintech startups having received funding during this period, according to the Small and Medium Enterprises General Authority, also known as Monsha’at.
During a panel titled “The Future of Saudi Digital Banking,” Eze Szafir, CEO of D360 Bank — an entity backed by the Public Investment Fund — provided a comprehensive overview of how the Kingdom is distinguishing itself within the global fintech ecosystem.
Szafir, who has spent over a decade studying fintech ecosystems worldwide, reflected on Saudi Arabia’s unparalleled approach to fostering a vibrant financial technology sector.
He pointed out that, globally, regions such as the UK, Europe, Latin America, and Asia have developed robust fintech environments, but they have yet to achieve the level of integration between various sectors that the Kingdom has.
The CEO explained that the collective push from private and public sectors toward realizing the goals set by Vision 2030 sets Saudi Arabia apart. This long-term initiative seeks to transform the nation’s economy by diversifying away from oil dependency and fostering growth in sectors such as fintech.
Szafir said: “What we see here is something we haven’t seen anywhere else in the world,” emphasizing that macro-level policies and micro-level initiatives create fertile ground for fintech innovation.
The CEO continued outlining the unique circumstances driving fintech growth in Saudi Arabia. On a macro level, the government’s active involvement and Vision 2030’s Financial Sector Development Program have laid the groundwork for systemic changes that enable the ecosystem.
He highlighted how financial regulators, banks, and tech companies are working in unison, adding that “it’s a unique place where competitors can also be partners.”
This collaborative effort is helping to create a supportive infrastructure for fintech startups, ensuring that regulatory frameworks are innovative and flexible enough to foster growth.
Szafir also shed light on the micro aspects, saying that the Kingdom has “close to 75 percent plus of fintech literacy, people having at least one fintech app in their cell phone.”
He added: “You have 5G covering more than 80 percent of the population. And you have instant payments, more than 90 percent of the total payments.”
Credit landscape being reshaped
Another notable session focused on the shifting landscape of consumer credit, as experts discussed how alternative methods for credit scoring are transforming access to financial services.
On the panel titled “Is the Consumer Credit Landscape Experiencing a Shift?” Alaa Al-Mashhadi, chief business development officer of the Saudi Credit Bureau, known as SIMAH, addressed the challenge of reaching underserved populations.
Al-Mashhadi underscored that although SIMAH covers around 20 million individuals in Saudi Arabia, not all have complete credit profiles, a problem commonly referred to as the “thin file” issue.
This occurs when individuals do not have enough credit history to be accurately assessed by traditional scoring models, limiting their access to financial services.
Al-Mashhadi pointed out that in Saudi Arabia, telco data is one of the key components in credit reporting, a rare advantage that sets the country apart from many others.
“Globally, telco is not usually being reported to credit bureaus, and if it is, then the credit bureau is lucky. Saudi Arabia is considered one of the lucky ones,” he said. Yet, there remains a significant unscored population, and bridging this gap is crucial for enhancing financial inclusion.
Building on this, Tariq Sanad, the chief financial officer of Tarabut Gateway, highlighted the transformative role that open banking is playing in reshaping the credit landscape.
According to Sanad, the future of consumer credit will be defined by seamless access to financial services, with fintech data enabling more accurate and real-time credit profiles.
“You will no longer realize that you are accessing financial services. It’s going to be seamless,” Sanad said, illustrating how open banking can provide secure, verified data directly from an individual’s bank account.
This allows lenders to create more precise credit profiles, even those with thin files, and enables consumers to make more informed financial decisions.
“With open banking, we have a very secure, verified source of that information,” he added, underlining that this can also help fintech companies develop new products tailored to individual spending habits and financial needs.
Central banks step up cooperation
The 24 Fintech conference also saw significant announcements that further underscored the Kingdom’s growing stature in the global fintech sector.
On the sidelines of the event, the Saudi Central Bank, known as SAMA, and the Central Bank of the Republic of Turkiye signed a memorandum of understanding to enhance cooperation between the two institutions, particularly in areas related to financial stability and fintech.
This agreement, signed by SAMA Governor Ayman Al-Sayari and CBRT Governor Fatih Karahan, strengthens bilateral ties between the two nations and establishes a framework for future collaboration in central banking operations.
Fintech funds
Saudi-based venture capital firm 1957 Ventures announced the size of its fund, totaling SR800 million ($216 million).
CEO Emad Kashgari highlighted that this fund will be pivotal in supporting the Kingdom’s fintech ecosystem, offering startups the financial backing needed to scale their operations.
This announcement reflects the broader trend of increased venture capital investment in Saudi fintech, which has attracted $1.84 billion since 2018, according to data from Monsha’at.
In the first half of 2024 alone, the Saudi fintech sector raised $186 million across 50 deals, reinforcing its status as one of the fastest-growing markets in the region.
As the Kingdom accelerates its journey toward establishing 525 fintech firms by 2030, the discussions at the conference have underlined the country’s ambition to lead the international fintech sector.
With the support of regulatory frameworks, investment capital, and cutting-edge technology, Saudi Arabia is well on its way to achieving its Vision 2030 goals, contributing $3.5 billion to the economy and creating over 18,000 jobs within the sector.
GCC banks to maintain ‘strong performance’ during 2024: S&P Global
Updated 04 September 2024
Nour El-Shaeri
RIYADH: Gulf Cooperation Council banks are set for strong performance through the remainder of 2024, driven by a 10.4 percent increase in lending during the first half of the year, a report claims.
S&P Global attributes this loan growth, up from 6.7 percent in 2023, to robust activity in non-oil sectors across Saudi Arabia and the UAE.
The top 45 GCC banks showed this annualized growth, reflecting heightened economic activity outside the oil industry.
The analysis indicates that this elevated lending growth will support the sector in managing potential economic uncertainties for the remainder of the year.
This comes as GCC countries prioritize expanding their non-oil sectors to diversify economies and reduce reliance on volatile oil revenues, driven by global energy transitions, fluctuating oil prices, and the need for sustainable growth.
“We expect sustained strong performance over the remainder of the year will help GCC banks navigate potential turbulence,” stated S&P Global.
The report also states that while higher-for-longer interest rates have kept bank margins stable at 2.7 percent, the migration of deposits from non-interest-bearing instruments to remunerated accounts continues.
NIBs accounted for 45 percent of total deposits at the end of 2023, down from 48 percent a year earlier, and have continued to decline.
Despite this, steady growth in the non-oil sectors has supported asset quality metrics, with cost of risk maintained between 60-70 basis points.
“These developments enabled the banks to maintain strong profitability in the first half, with return on assets strengthening to 1.74 percent, from 1.65 percent at end-2023,” it added.
The report suggests that conservative dividend payouts will further bolster banks’ capital positions, with the average Tier 1 ratio, a bank’s core equity capital to its total risk-weighted assets, standing at 17.1 percent as of June 30, 2024, compared to 17.3 percent at the end of 2023.
However, S&P Globals noted that challenges persist in some sectors.
“Still-muted real estate performance in Qatar and Kuwait-notably due to oversupply and subdued demand, respectively-could present risks for those banking sectors,” the report warns.
Nonetheless, strong provisions in Kuwait and the Qatari government’s role in the economy are expected to support resilience.
Looking ahead, the report highlights that a projected rate cut by the US Federal Reserve of 150 bps between September and the end of 2025 could reduce GCC banks’ net income by approximately 12 percent, based on 2023 figures.
Despite this potential impact, the report suggests that cost control measures may soften the blow, with the rate cuts likely to provide relief to highly leveraged corporates and retail clients. This could help maintain asset quality across the region’s banks.
Geopolitical risks, while present, are not expected to disrupt the region’s banking systems, it added.
GCC sovereigns and banks are deemed well-positioned to manage potential fallout, barring extreme scenarios such as the closure of major export routes or significant threats to domestic security.
“A sharp increase in uncertainty could trigger detrimental capital outflows or prompt sovereigns to liquidate external assets and provide support,” the report notes, but it highlights the preparedness of sovereigns, particularly in Saudi Arabia, Bahrain, the UAE, and Kuwait, to navigate such risks.
The report further states that despite elevated external debt in Bahrain and Saudi Arabia, overall risks remain manageable due to stable regional deposits and robust government support mechanisms.
