Coronavirus fears, low oil prices pull down MSM

Muscat: The MSM30 Index closed the week down by 4.45 percent w-o-w, largely on account of coronavirus pandemic related fears and low oil prices.

All sub-indices closed down, led by the Financial Index, which closed down by 4.34 percent w-o-w followed by the Services Index which closed down by 4.31 percent w-o-w and the Industrial Index which closed down by 2.23 percent w-o-w. The MSM Shariah Index closed down by 2.35 per cent w-o-w.

Gulf Investment Services and two other shareholders have signed a Sale and Purchase Agreement (SPA) with Ubhar Capital for the sale of 100 per cent of its subsidiary Gulf Baader Capital Markets.

The final value of the deal as agreed and stated in the signed SPA is RO 2.041mn plus a premium of RO 225,000. The deal value will be adjusted with the net result of GBCM for the month of March 2020. Completion of acquisition transaction will be within 45 days from the day of the signing of SPA.

Oman’s central bank announced to provide RO 8bn ($20.8 billion) in extra liquidity to banks as one of several measures aimed at supporting the economy. The central bank has asked banks to cut banking fees, adjust their capital and credit ratios, and allow repayment postponements for up to six months amongst other measures.

  • Lowering Capital Conservation Buffers (CCB) is positive for banks in order to remain above minimum regulatory requirements, if in case, their capital takes a hit due to higher provisioning requirement.
  • Increasing the lending ratio means that in case of deposit flight, regulatory maximum is not violated.
  • Deferring the risk classification of loans pertaining to Government projects for the period of 6 months. This is an ideal move in the current scenario and offers a much-needed respite to troubled banking exposures.
  • Banks are encouraged to consider reducing existing fees related to various banking service and to abstain from introducing new ones during 2020. It is a welcome respite for borrowers, however, it might affect banks’ efforts to maintain/improve profitability through fee income.
  • Reduction of interest rates is always a welcome move in order to encourage economic growth. However, for banks, it might add pressure to their net interest margins.

CBO’s foreign assets as at the end of Jan’20 stood at RO 6.29bn, having contracted by 4 percent YoY and 2 percent MoM. The assets have fallen below the trailing 12m simple average of RO 6.34bn. These assets include bullion, IMF reserve assets, placements abroad and foreign securities.

Regionally, all GCC indices closed down except Qatar which was up 4.21 percent

Following an emergency rate cut by the US Fed, the UAE, Saudi, Kuwait, and Bahrain announced rate cuts as well.

  • Kuwait’s central bank cut its deposit rate by 100 basis points (bps) to 1.5 percent.
  • Saudi Arabian Monetary Authority lowered its repo rate from 175bps to 100 bps and its reverse repo rate from 125 bps to 50 bps.
  • UAE Central Bank reduced the interest rate applicable to the one-week certificates of deposit (CD) by 75 bps.
  • Oman reduced its repo rate by 75 basis points to 0.5 percent.
  • Central Bank of Bahrain cut its interest rates on overnight, one-week and one-month deposits by 75 bps to 0.75 percent, 1.00 percent, and 1.45 percent respectively.

During the week, GCC governments announced stimulus packages to contain the coronavirus impact on their economies. The UAE Central Bank announced a USD 27bn package, consisting of AED 50bn from the CBUAE funds through collateralized loans at zero cost to all banks operating in the UAE and of AED 50bn funds freed up from banks’ capital buffers. CBUAE is also allowing banks to free-up their regulatory capital buffers to boost lending capacity and support the UAE economy, amongst other actions to support banks.

Similarly, the Saudi Central Bank (SAMA) also announced a USD 13.32bn package to help small and medium-sized enterprises (SMEs). Saudi funding aims to grant SMEs six-month deferrals on bank payments, concessional financing, and exemptions from the costs of a loan guarantee program.  Dubai has also launched a Dh1.5 billion (USD 408mn) economic stimulus package for the next three months to support companies and the business sector in Dubai. Qatar announced a mega financial package of QR75bn to support the private sector along with a plan to increase investments in the stock exchange by QR10bn. Lastly, Bahrain’s central bank announced banks, financing and microfinance companies must offer six-month deferrals on installments for borrowers impacted by the coronavirus outbreak.

CoVID-19 Stimulus Package USD bn
Central Bank of UAE 27.0
Saudi Arabia (SAMA) 50.0
Dubai 0.40
Bahrain Government 11.4
Qatar 23.4

[Courtesy: U-Capital}

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