UAE Public Debt Unit formed
On September 7, the UAE announced the creation of a public debt unit in order to manage the country’s debt. In February, Bank of America Merrill Lynch estimated the UAE’s total debt at some $142 billion — $80 billion of which is foreign owned — while also estimating that $24 billion of the total debt is due by the end of 2009. The public debt unit is one of three parts of the Public Debt Management Office, which will answer to the finance minister. The unit will be responsible for strategizing, planning and implementing plans to solve the emirates’ finance problems, which may eventually lead to formal debt and risk-management policies, including a cap on public debt.
Dubai recovery not until after 2010
A recent JP Morgan Chase study says that economic recovery will be impossible for the UAE in 2010 because of slow private credit growth. “The unfolding of the liquidity crisis will be key to the economic recovery. However, the rapid concentration of risk factors and the sharp increase in loan-to-deposit ratios will likely keep the adjustment relatively slow through 2010,” the report says. GDP growth is predicted to slow to 0.3 percent by the end of 2009, but may increase to 2.9 percent in 2010, largely thanks to the hydrocarbon sector. According to the report, banks will first have to adjust their foreign liabilities before they can expect any turnaround in credit growth.
ABL warns profits decline if interest rates do not increase
The Association of Banks in Lebanon warned in September that if Lebanese banks do not lower interest rates on all deposits, they will see profits decline and risk losses. Global interest rates are low and holding steady while Lebanese banks hold their rates close to the London Inter-bank Offering Rate. Rates of return in both Eurobonds and Treasury bills have declined. And despite the Central Bank’s freeze on issuing certificates of deposit and the decrease in T-bills being issued from the treasury, banks are still paying high interest rates on existing deposits in Lebanese Lira. The ABL added that banks should base their interest rates on the local markets because of the potential for drastic change in global interest rates.
Lebanon 16th in regional creditworthiness
Last month Lebanon moved up 12 places globally in terms of credit worthiness according to the Institutional Investor magazine’s semi-annual creditworthiness survey. Nonetheless, the country is still three spots lower than it was in September 2008. The survey uses a scale of 0 to 100 to rank countries based on the likelihood of them defaulting on their debt as well as information collected from economists, sovereign risk analysts and securities firms. Lebanon received a score of 29.4 placing it just behind Syria with a score of 29.5 and ahead of Yemen with a score of 28.1. Ranked first in the region was Qatar followed by the UAE and Kuwait. Switzerland held its spot as the least likely to default while Somalia remained at the bottom of the rankings in 178th place. Lebanon currently holds a debt to GDP ratio of around 164 percent. The country’s credit rating was upgraded from B- to B in July by the global credit ratings agency Capital Intelligence.
Syria falls 16 places in Competitiveness ranking
The World Economic Forum’s Global Competitiveness Index ranked Syria 94 out of 133 countries for 2009-2010, falling from 78th place in the previous survey. The annual survey uses technological advancement, foreign direct investment and macro-economic stability to gauge a country’s overall business competitiveness. Syria came in last out of the 13 Middle East and North Africa countries assessed. According to the survey, the low ranking is due to inefficient government bureaucracy, restrictive labor regulations, an inadequately educated labor force, low access to finance and inadequate infrastructure. Conversely Qatar, the UAE, Saudi Arabia, Bahrain, Kuwait and Tunisia all ranked in the top third overall.
Lebanese debt at $47.9 billion
The $47.9 billion in gross public debt marks a 7.3 percent increase from the end of July 2008, reports Byblos Bank. Domestic debt increased 14.9 percent to $26.6 billion and external debt increased 0.9 percent to $21.3 billion from this time last year. The percentage of local currency debt has increased from last year with 55.5 percent of gross public debt currently in local currency, up from 51.8 percent at the end of July 2008. This leaves 44.5 percent of current debt in foreign currency. Commercial banks comprise 57.1 percent of local public debt followed by the Central Bank with 26.1 percent, and then public agencies, financial institutions and the general public, which together make up 16.8 percent. The external debt is comprised mostly of Eurobond holders, foreign currency T-bills and private sector loans, which total 85.9 percent. The remainder of the external debt is made up of multilateral institutions with 7.3 percent, foreign governments with 4.7 percent and Paris II loans with 2.1 percent.
Algosaibi/Saad update
The scandal between the once renowned Saad Group and Algosaibi & Brothers continues to worsen. According to Zawya Dow Jones, the Saudi conglomerates owe more than $20 billion to some 120 local and international lenders.
Muhammad al-Jasser, governor of the Saudi Arabian Monetary Agency (SAMA), said last month that the companies are not the responsibility of the kingdom, noting that “These family companies are not banks and are not regulated by the monetary agency or by the Capital Markets Authority.” However, the Saudi government has created a specific council to investigate the companies. Jasser added that, “Within the kingdom, we have not noticed any financial irregularities. We are not responsible for what happens outside the kingdom.”
The governor insisted there would be no bailout for Saudi bank losses, claiming the idea was “absolutely unthinkable.” However, in late September, Maan Al-Sanea — chairman of Saad Group — came to an agreement with local Saudi banks for a reported $2.6 billion in outstanding loans. Earlier in the month chairman of the Samba Financial Group, Saud bin Abdul Aziz Algosaibi, stepped down from his position following several lawsuits filed in international courts. In July, Mashreq Bank pursued legal action against Algosaibi in New York, claiming $225 million was owed to the bank. On September 16, Mashreq reported its full exposure to the company at $400 million.
Also last month, Abu Dhabi Commercial Bank filed a $30 million claim in Britain’s High Court against Saad Group unit Saad Trading, Contracting & Financial Services Company.
Lebanese consumer confidence drops in August
Largely due to the public’s belief that a cabinet will not soon be formed, consumer confidence is down in Lebanon for the second month in a row. The August consumer confidence level matches that from March 2009 at 165 points, down 11 percent from the previous month. The expected personal income index fell by 13 percent, while the durable goods consumption index dropped the most, by 80 points. This was attributed to consumers not making large product purchases. The areas of Beirut and South Lebanon saw the biggest decline, with the former decreasing by 20 percent and the latter by 18 percent. Despite the decrease, the index is up from the consumer confidence rating of August 2008, which was 123 points.
