VAT TO AFFECT BANKS
The UAE and GCC banks that are facing increased regulatory burden from Basel III capital requirements and International Reporting Standards 9 (IFRS 9) are expected to face further pressure in terms of costs and margin squeeze from implementation of value added tax (VAT) and common reporting standards (CRS), according to KPMG.
In the recently published “Banking sector Perspectives 2017”, KPMG partners argue that both VAT and CRS are likely to have a significant impact on every bank operating in the UAE. “VAT is likely to be an irrecoverable cost, negatively affecting margins for the banking sector. It is therefore imperative that the impact of VAT on UAE banks is clearly understood,” said Umair Hameed, Partner at KPMG.
VAT is a tax on transactions and impacts all areas of business from IT systems to legal, HR to marketing, and procurement to finance. The standard rate of VAT is expected to be five per cent. An additional taxable rate of zero per cent may be extended by some GCC member states including the UAE. Whether a service is supplied at either five per cent or zero per cent VAT, the taxpayer making the supplies is generally entitled to recover any VAT incurred on their costs.
For banks, this will include administrative and cash flow costs. However, it is likely that many financial services will be VAT exempt. “VAT exempt is not a rate of tax and so cannot be added to the price of goods or services. Supplies that are VAT exempt do not typically allow for VAT incurred on costs to be recovered, thereby creating a blocked VAT cost,” said Hameed.
Transactions involving moving money are likely to be VAT exempt. International transactions may be zero rated or outside the scope of VAT. A bank that provides both taxable (whatever the rate) and VAT exempt services will be required to calculate how much VAT it is entitled to recover. The exact amount will depend on the legislation – international practice varies from fixed percentages to reasonable or special methods that may require negotiation with the tax authority.
With less than ten months until implementation, time to prepare is short and many banking organisations have already started their VAT journey. The first steps are to secure resources, plan and analyse the project, raise awareness and assess VAT’s impact. This clearly involves identifying and mapping the categories of supplies based on the expected VAT outcome: five per cent, zero per cent and VAT exempt.
UAE BANK SECTOR ASSETS WORTH OVER $711 BILLION
The UAE’s banking sector topped the GCC region in terms of asset volume, with a total value of about $711 billion (Dh2.61 trillion) in 2016, according to statistics from the Central Bank of the UAE. The Saudi Arabia banking sector came second, with a total asset value of
$602 billion, while Qatar’s came in third place with $349 billion, followed by Kuwait with $198 billion, Bahrain with $193 billion and Oman with $70 billion.
In terms of banks with the largest assets, the anticipated merger between National Bank of Abu Dhabi and First Gulf Bank came in second place with around $183 billion, while Qatar National Bank took first place with around $198 billion. Emirates NBD came in third place with assets valued at $122 billion, followed by National Commercial Bank of Saudi Arabia with $117 billion, National Bank of Kuwait with $79 billion, Ahli United Bank with $34 billion and Muscat Bank with $28 billion.
The merger between the NBAD and FGB took the lead in terms of capital stock, whose value reached $26.6 billion, followed by QNB with around $16.5 billion, Emirates NBD with $14.7 billion, National Commercial Bank of Saudi Arabia with $14.1 billion and National Bank of Kuwait with $9.5 billion.
Banking expert Tariq bin Hindi said the UAE banking sector in first place in terms of asset volume reflects the strength of the sector, giving it a stature and reputation not only at a regional level, but also at a global level. He added that the UAE’s banking sector is not only characterised with its large asset volume, but also with its quality, noting that this could be seen through its increased financial solvency that exceeds the demands of international monetary institutions.
OIL VOLATILITY TO BOOST GCC IPOs
GCC governments, facing persistent oil price volatility and fiscal deficits, will increasingly be looking at privatisation and initial public offerings (IPOs) to raise capital to address immediate budget deficits, head of the Qatar Stock Exchange (QSE) said.
Rashid Al Mansoori, chief executive of QSE, said there remains a shortage of primary market transactions in the Arab region. “Cyclical factors have not helped [market conditions will turn again] but the structural factors remain of larger concern. Owners of businessesstill look at the cost of doing an IPO and are not always convincedthat the costs are worth the benefits,” Al Mansoori told Khaleej Times.
The first IPO recorded in 2017 came from Qatar’s Investment Holding Group in January 2017. He said Qatar’s IPO market has not been immune to the slowdown. “However, we are confident that the pipeline we have established over the last three years in particular will see more IPOs than we have seen recently.”
“We expect ?to benefit from both the privatisation drive, most evident in Saudi Arabia, but also listings from family businesses too,” said Al Mansoori, who is in Dubai to address the second Arab IPO Summit, which started last week. The QSE chief said family businesses or more generally private companies are the long-term pipeline for stock exchanges. “Privatisations may provide the catalyst but cannot be the basis for sustainable growth. We have regular conversations with family businesses, who are the mainstay of many GCC economies, but who are reluctant to list.”
Family-owned businesses in the GCC have been hesitant to introduce external/minority shareholders and/or see their equity diluted. “The PJSC structure with access to external capital and separation of ownership and executive management has been the most successful model worldwide and one which is of great importance as family businesses plan for third and fourth generation owners,” said Al Mansoori.
IRAN, RUSSIA BILATERAL TRADE TO REACH $10 BILLIN IN 3 YEARS
The volume of bilateral trade between Iran and Russia may reach $10 billion in three years, Iranian Ambassador to Russia Mehdi Sanaei said. In 2016, the mutual trade turnover increased by 80 percent and amounted to over $2 billion, according to the head of the second Asian department of Russia’s Foreign Ministry. The two states are actively cooperating in energy, defense and agriculture spheres, among others.
“The growth of Iran’s trade relations with Russia was the biggest last year in comparison with any other country… It seems to me that this trend will continue, and we will reach a considerable trade of $10 billion in the coming two or three years,” Sanaei said at the round table organized by Rossiya Segodnya International Information Agency.
On Monday, Iranian Communications and Information Technology Minister Mahmoud Vaezi said that the road map toward the development of cooperation between Iran and Russia in the medium and long-term perspective may be signed during the upcoming visit of Iranian
President Hassan Rouhani to Russia in late March. According to Vaezi, Iran and Russia are seeking to develop relations in all spheres, including political, economic, cultural and diplomatic cooperation between the countries’ regions.
IRAN’S OIL OUTPUT
TEHRAN – According to OPEC’s latest monthly report published on March 14, Iran’s oil output in February reached 3.814 million barrels per day (bpd), a 36,100-bpd rise compared to January. The country’s output stood at 3.778 million bpd in January; OPEC data indicates that the February figure is 976,000 bpd more than that of the 2015 average.
The increase comes at the time that recently Iranian Oil Minister Bijan Namdar Zanganeh announced that Iran has managed to increase its exports to 3 million bpd, its highest level since 1979. In the meantime, Iran’s heavy oil price increased by 2.4 percent to $53.16 per barrel during February compared to the preceding month.
Iran wants to increase its production to 5 million bpd by 2021. However, it needs investments by foreign investors to achieve that target. This will not be a new high in production for Iran, because it used to pump in excess of 6 million bpd in the 1970s.
MOODY LIFTS OUTLOOK OF SAUDI ARABIA’S BANKING SYSTEM
Credit rating agency Moody’s Investors Service has raised its outlook for Saudi Arabia’s banking system to “stable” from “negative”, in a fresh sign that global investor confidence in the kingdom is recovering after plunging due to low oil prices.
“Despite low oil prices, which we expect to fluctuate between $40 and $60 a barrel over the next 18 months, and cuts in oil production, the Saudi economy will gradually recover, supported by government spending,” Moody’s vice-president Olivier Panis said in a statement.
“As a result, Saudi banks’ liquidity and funding conditions will improve. Although profitability and loan performance will continue to soften, Saudi banks will maintain robust capital and loss-absorption buffers compared with regional and international peers over the outlook horizon.” Low oil prices have strained Saudi government finances, leading to a $98 billion state budget deficit in 2015. This forced state spending cuts that slowed the economy, worsened loan quality and reduced banks’ access to fresh deposits.
In the last several months, however, pressures have eased. The government replenished its coffers with a $17.5 billion international bond issue in October and announced progress in cutting its deficit, while Brent crude oil rebounded above $50 a barrel from last year’s average of $45. One-year currency forwards show pressure for depreciation of the riyal near its lowest since late 2015, while three-month Saudi interbank money rates have dropped to their lowest since March 2016 as the modest improvement in state finances has allowed the government to spend more freely.
OUR FUTURE IS YOUTH, NOT OIL
Dubai: ‘ Sheikh Mohamed addressed a 3000-strong crowd of Emirati students and military servicemen, on the importance of taking everychance, challenge and chapter in life, as a positive opportunity, to not only better one’s self, but to do so for the betterment of the nation.
Sheikh Mohammed recalled special memories from his early childhood, were particularly moving. I am not Emirati, nor was I born in the UAE – in fact, I was born in Baghdad and raised for almost 20 years on the other side of the world – in New Zealand. Listening to his words inspired me to believe there are also endless opportunities and doors that I can open.
It was these powerful words that made the audience realise, the speech was not like any other, but rather, something spoken purely from the heart. “The way Sheikh Mohamed spoke to us, it was as if we were his children, he truly made us feel as one. It was one of the most inspirational moments in my life,” said 24-year-old Naser Al Mansoori present in the audience. Al Mansoori, a Zayed University student on an Etihad Airlines internship, said, “When Sheikh Mohamed recalled the UAE’s Founding Father Sheikh Zayed’s vision, and how he unified an entire nation.
FREE ZONES CONTRIBUTED $55 BILLION TO ISLAMIC ECONOMY
Dubai ranks first among the world’s leading Islamic economy-enabling free zone cities that collectively contribute $55 billion to the global Shariah economy, findings of a new study revealed. Other cities ranked after Dubai include Kuala Lumpur and Johor Bahru in Malaysia, and Manama in Bahrain, according to the Free Zones Outlook Report released on Wednesday by the Dubai Silicon Oasis Authority (DSOA), the regulatory body for Dubai Silicon Oasis.
The report, developed in collaboration with Thomson Reuters, estimates that in 2015 free zones contributed $55 billion (Dh202 billion) to the Islamic economy, valued at $1.9 trillion, and projections suggest this number will increase to $117 billion by 2021. Free zone contribution to the halal food sector amounted to $34 billion and is expected to hit $74 billion by 2021, while the $7 billion contribution to the modest fashion sector is projected to double by the same period. According to the report, Malaysia was one of the first nations to develop the concept, creating dedicated free zone “hubs” across the country. At present, 30 free zones across 18 cities worldwide support
Islamic economy activities. Dr Mohammed Alzarooni, vice-chairman and CEO of the DSOA, said the authority actively participates in boosting the growth of the emirate’s Islamic economy sector.
IRAN TO INCREASE 60 PERCENT OIL EXPORT TO EROPE
TEHRAN- Iran will increase oil exports to Europe by 60 percent by the next two months, National Iranian Oil Company’s managing director said, IRNA reported on Saturday.
“Currently, oil exports to Europe stands at 500 thousand barrels per day and we are planning to raise it to 800 thousand barrels per day by the next two months,” IRNA quoted Ali Kardor as saying.
After the lifting of the sanctions, Shell and Total each have importedtwo consignments of Iranian oil, each to the tune of two million barrels, he said.
“Eni has also bought two million barrels of oil. Moreover, we have exported some oil to Spain,” Kardor explained.
The International Energy Agency (IEA) has predicted that Iran will expand its oil production capacity by 400,000 bpd to reach 4.15 million bpd in 2022.
IEA also said the forecast hinges on whether the accord to lift international sanctions remains in place. Having been released last year from trade restrictions, Iran has introduced a new contract model to attract foreign investors.