After two months of the end of second quarter, we now have 75% visibility on trends in GCC corporate earnings. Corporate earnings dropped 6% QoQ and 7% YoY to USD10.7 Bn in 2Q10 primarily due to declines in the telecommunications, financial services and banking sectors, according to a recent report by Kuwait Financial Centre “Markaz”... 1H10 benefited from higher profits during 1Q10, which caused earnings to rise 13% YoY to USD22 Bn.
GCC Corporate Earnings Trend
On YoY basis, Saudi Arabia’s corporate earnings (at 89%visibility) grew 25% in 2Q10. 1H10 results were more optimistic with earnings up 42% YoY. KSA’s earnings received a boost from the commodities sector led by SABIC, which reported earnings of USD2.8 Bn in 1H10. A recovery in commodity prices and higher demand for fertilizers and plastics (mainly from Asia) proved advantageous to the company. However, the banking sector’s profits contracted 10% in both 2Q10 and 1H10. This can be ascribed to the increase in loan loss provisioning, especially in 2Q - one probable reason for this is exposure to the Sa’ad and Algosaibi groups, which defaulted on their USD15.7 Bn loans (approximately USD5 Bn owed to Saudi Banks) in late 2009.
Zain’s earnings in 2Q10 were boosted by a USD2.65 Bn profit from sale of operations in Africa. Excluding these gains, Kuwait’s corporate profits (at 45%visibility) dropped 44% YoY due to dismal performance by most sectors. However, the Kuwaiti banking sector earnings continued rising, both during the quarter as well as the first half of 2010.
UAE’s earnings growth (at 93%visibility) fell 36% YoY in 2Q10 and 12% YoY in 1H10. Almost all sectors recorded YoY declines during the quarter, with the banking and telecommunications sectors proving to be major laggards. UAE banks witnessed higher provisions in 2Q, led mainly by Emirates NBD and Abu Dhabi Commercial Bank. The banks’ major concerns were exposures and impairments in Dubai World and the assets of related entities amidst tighter guidelines issued by the Central bank.
Qatar, Oman & Bahrain
Qatar and Oman’s earnings declined 19% and 20% respectively, marred by poor performances in non-banking sectors that dragged down earnings. Bahrain, however, managed to post a 29% YoY growth in its earnings. The banking sectors of Bahrain, Oman and Qatar posted YoY growths of 40%, 39% and 15%, respectively, during the quarter, confirming the recovery trend. Qatar’s overall earnings declined mainly due to a drop in Industries Qatar’s earnings.
Kuwait Financial Centre 'Markaz', with total assets under management of over KD928 million as of June 30, 2010, was established in 1974 has become one of the leading asset management and investment banking institutions in the Arabian Gulf Region. Markaz was listed on the Kuwait Stock Exchange (KSE) in 1997.