Forbes: Measures taken against COVID-19 hit consumer services, real estate

KUWAIT CITY: A report published by the ‘Forbes’ magazine stated that the measures taken by the Gulf countries to stop the spread of the corona pandemic showed a noticeable negative impact on consumer service activities, real estate and hospitality, which are the sectors that traditionally support the financial services sector in the region, reports Al-Rai daily.

According to a previous report by Moody’s, the profitability of Gulf banks will decline during the current year with the shrinking of the region’s economies in light of the repercussions of coronavirus and the decline in oil prices, the global production and the reduction in production by the Organization of Petroleum Exporting Countries (OPEC) and its partners, adding more headwinds to growth in the region during the current year.

According to a Forbes report, this is despite the unprecedented challenges, the region’s banks are working in multiple ways to protect their businesses from external shocks through a number of trends, including mergers and acquisitions, sustainable financing, in addition to digitalization.

Competitiveness

The report pointed out that the financial services industry in the Gulf witnessed a rise in the activity of acquisitions and mergers long before the spread of ‘corona’, as banks sought to find ways to improve competitiveness, reduce operating costs and enhance capital, amid deteriorating operating conditions.

On the other hand, the report sheds light on the banks’ tendency to issue sustainable debt bonds, which constitute a variety of instruments including green bonds. With a new world record for issuing sustainable debt worth $465 billion in 2019, up 78 percent from $261.4 billion in 2018, sustainable financing is a fastgrowing class of fixed-income securities.

The report showed that banks in the Gulf region are witnessing an increasing interest in green bonds, although the demand for them is still in its infancy, as more investors are committed to responsible investment, explaining that during the past year, the total green bond market value reached more than $230 billion, and reached $2 billion in the Middle East and North Africa, with the potential to grow further.

In this regard, the report referred to the issuance of green sukuk launched by the Islamic Development Bank of Saudi Arabia, which represents the bank’s first issuance of $1.2 billion during the past year, after the completion of the sustainable financing framework to help issue bonds that will be used for green projects.

Finance

The Forbes report noted that at a time when Gulf countries are using international debt markets to finance projects and fill their budget deficits, analysts expect green sukuk to expand the appeal of Islamic bonds outside traditional markets in South Asia and the Middle East, to include “ethical” investors in western countries.

The report expected that the double whammy of the corona epidemic and a drop in oil prices would boost the issuance of green bonds, with Gulf governments and banks looking to accelerate economic diversification and move to sustainable financing.

On the other hand, analysts believe that the corona outbreak was a test for the digital transformation programs of regional banks, especially as customers move to digital interaction with service providers amid travel and movement restrictions, as part of governments’ efforts to reduce the spread of the virus.

Forbes suggested that the current operating environment would accelerate the pace of digitization, as regional banks face competition from non-traditional financial technology entrants, amid an increase in technology-savvy clients, while seeking to enable regulatory initiatives aimed at enhancing digital banking services.