There ing supplies and are worries that chinese demand is trailing off. He markets in the region are focused on earn season. C. E. O. Et to the the economic stability of the National Stability of the country has been the core essence of the game. Support of the local banks thats to make sure and our long term strategies are getting from plan a to plan b. The institution has to perform in substance. All about and s the National Institutions are commitments. Give us a sense of how exposed you are to the gulf crisis. You pointed out some of the strong fundamentals in the comecial system which have under british, but in terms of ou as doha bank and your exposure to business coming out of the gulf and the united specifically . In ts been substantive expert from the and trade is 25 million. Egypt is 1. 1 billion. Destabilizegoing to in any form. Tradeok at the balance in of investments is a counterpart of this and Financial Institutions have to have plan b. Thats what we manage to do with substance. In and the plan b Financial Institutions have to rely on that business, thats what we do. You look at our business models, not just in india, kuwait, a strategyportunity, the has been the core changes we have made from lending investments. I wonder if plan b also some of your ng loans. We heard about u. [nch] a. E. Companiesng loans for atdy counted rates. Hat can you tell us on that front . You have to local market liquid i didnt, u. A. E. , the make sure i e to clear local market liquidity and base. In the asset its not significant for me to worry about. We keep doing it. Its a novel part of banking business. When we look at your stock, e have have seen some stability, in fact, considering isolation, 572 on the bloomberg and stability since june 5. Go further back through the year, you can see that you see a huge plunge. The market seems to be holding on purely for dividends. Done, many s investors felt there was no catalyst for your bank. Will you change the narrative . At the qutar Exchange List of stocks. Costeffective, it is good investments. Has to hat everybody imagine in global terms. Opportunity, ant allocate. Ts been a telling story over the years and a good investment. Capitol by 20 nd we are here to make sure we trengthen the management, a move from 16 to 17. I want to pick up on what you realigning the business. E spoke to the c. E. O. Of the qutar National Bank looking to asia. Are you going to push your outwards, what does that realignment look like . Realign in bank to substance the opportunities. We have offices from sidney, kong, india, singapore. Ofts the substance in terms global productivity. Thats what we concentrate on completing years and the usiness model, Investment Bank of finance, thats in substance. And e going to concentrate make sure. Next on the best of Bloomberg Markets, saudi Bank Earnings start to rule in, our interview c. E. O. Of one of the continue doms banks. And it affect business more. This is bloomberg. Welcome back to the best of Bloomberg Markets middle east. Saudi arabias biggest banks has beaten investments for year. Rst half of the its been able to maintain its planned growth practice ject rye six months of 2017. Can it continue to the back end year. We spoke with the managing director and chief executive officer, take a look. It came from all activities. Banking, ok at orporate banking, investments, all are growing in double digits. Thats according to our longterm strategy. If you also look back the last ive years, you will see its one of the largest or Fastest Growing in the region. This has changed continuously and one of the reason also, like said, with the bank, we idnt have our market shares and well add to it in the future. What is happening with the credit . How are you keeping that under control . Me give you some highlights about the balance total nd if you see financing, it exceeded 76 so growing by 16 , you total polvets, one ource of funding did increase and reach more than 85 billion. Assets this time exceeding 110 billion. He cost of funding will increase, yet there are many other opportunities and if you Balance Sheets coming from different source of funding. One is the current account costing, net interest bearing there are d definitely liquidity today as of and the cost of funding has decreased. Here is some opportunities for the banks as well as if theyre ustainable or not is the question, but we believe also overnment finishing, that will ut some pressure on liquidity, but there will be capability to manage such an issue. You assisted with structuring local finance industry. What can you tell us about the issuance . Size of the its not yet been decided but this will be the first ime that will issue which is very important and very good opportunities, not only for only for banks, individuals. Et for im very optimistic and were to it. Forward as he Global Players such and Deutsche Bank, yourthis have an impact on business or enough to go around . Competing in a different segment. They will be up in a location, would focus on some corporate business which is ok competition always will inherent history. In with qutar, a lot of the do you expect to see on your Balance Sheet . Negative impact your company of grow as a business . And that will g continue. So i am not seeing a big issue related in continue. Economy growth for such relationship with qutar. Very small, and conomically the relationship between qutar and saudi arabia are not a big size. Down the ind conversation and talk about the head winds playing out on the front. C were joined with the chief economist. I put together a chart in terms one what im going to the most here is for part they have been moving in lockstep. Mike here t latest orward while the saudi have tabilized, how long do you expect this to drag on, monica . When you have the geopolitical developments, there is pressure on the offshore for the qutari real. To provide enough liquidity to make economic and needs. Ial so there is a disconnect between actual market and offshore market. We see officials continuing, reflected in the offshore market. Get closer not world up 2022, some of the magic rospects that has hard to utar, they are resilient, but how long . They have deep reserve pockets. The critical question is they access to foreign funding. They wont want to draw down all reserves, especially the liquid ones. We mentioned erm, that the Economic Impact is you eable and i think what shore e policimakers is up banking deposits. Increase in the Banking Sector. The more they can show the contained, act is that is more supportive of etting foreign funding from asia which has been an important source Going Forward. We do expect a slowdown contained, but last 5. 6 . The gdp was around we already have seen a one cue even camee the earth challenges up. Goaltender throwed down to 3. 5 to 4 in our estimates. Product owns in activities. More have to be found which is in this environment. And the project up next, a secondquarter retail the biggest company, the chairman of the to us about the earnings outlook. This is bloomberg. Welcome back to the best of east, erg markets middle secondquarter innings, saudi rabias bigger retailer missed estimates. Net income of 39, 1 million forecast. Nalysts we spoke with the founder and chairman. Some nice pickup announcement has happened. E actually have a reasonable quarter from the beginning. So Going Forward, do you xpect that to have an even bigger impact on your Balance Sheet . In ou expect more momentum consumer activity off the back f the restoration of those benefits . I think on the other hand, of course, last and s changes and new fees ow i think its probably stab across ave seen it different indicators including all of in traffic in our stores. I think also you are able to gain market share which also helped your earnings this year. Can go u say that you ahead and continue those market through the tors rest of the year, or will you see a plateau in that sector . We expect this to continue for the third quarter. Will be arter probably. Lit softer year and pening last there has been a change because stores are required to ha have and were head of the have been able to get the market share. The advantage will end august, but weto expect in our top income line. You also had a boost in 42 to 47. Wrooms from will that continue that sort of of th, continue to the rest are you done with more distribution assets . We will have more stores pening this quarter and next quarter. We should have more than six this year. En that should continue to give us some growth. Hand, we have possess growth. So half of the growth is coming from the same sales. That is coming into x pats. Or could they be a draw . We havent noticed anything. Its already started. Have seen nice growth similar o the first quarter, but eventually i guess some of them will reduce the spending wall lets. To maximize our discretionary spending. A lot of the c. E. O. S that we have givenpeaking to us a sense of the impact that not risis with qutar or is having on their respective businesses. Point of view that its having, if at all . Generally i think is having empires. Ts already sink in peoples minds. Its normal. N the other hand, we have some they which are in qutar, qutari stores. We are shipping more and more to those stores. When it comes to the saudi seeing consl days with smaller retailers continuing to close their doors. Is this a trend that you continue to see through the markets for the rest of the sel year . We do expect to see some more cc. An opportunity in business. More are a little bit worried and we are continuing our expansion. We are not changing anything for this year and next year. Opportunities to take advantage of it and its far. En to be true so in terms of acquisition, would you consider any acquisitions . Would you consider moving into new markets . Excited about . Excluding ot acquisition where we can improve value. Areholder on the other hand, we are seeing smaller towns. We have been doing very well so a good we have which has n kuwait started where were opening for stores. Them are basically new markets and we think we still keep the growth robust double digit. Is the biggestat risk out there for you . Is it more changes in government policy . Priceses, what keeps you up at night . We have been in cycles but not as strong. During the cycles we actually go share. Ok for market so as you see this year, were growth. E double digit this is really nice and we think of it and advantage in the antage of some country. Next on the best of bloomberg arkets middle east, an interview about the strategy for the market, well break it all down for you, this is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Im yousef gamal eldin. Efghermes says the path to msci inclusion for saudi arabia is a volatile one. Mohamad alhajj is the mina equities strategist. He thinks the upgrade process will not provide a Straight Path to riches, but we also got his views on the qatar standoff. Take a listen. Are saudi too expensive but worth it . Mohamad i think they are a bit expensive. Banks are definitely cheaper than the rest of the market. I think the multiples are higher by that count. Whats worrying is the growth in saudi arabia will be weaker than emerging markets and weaker than egypt. So that high multiple is justified to some extent, but the premium has become expensive. If you look at the history, saudi arabia peaks around 16 times earnings, we are currently around 14 times earnings so we , are close to that level. There is little growth, more activity coming in. More pain for saudi corporates, more pain for expats. The restatement of Public Sector employees and domestic consumption from the local population, but expats are feeling some pressure. I think the story in saudi arabia will be a little volatile on corporate earnings. But index inclusions are the main factor Going Forward. Yousef we do have some of the big banks supporting this week. We will get into the Consumer Spending story later but i want to ask you about the Investment Strategy here and about how you take into consideration that you are looking at a fed that is tightening. It is sending shockwaves across the world, across asset classes. How will that trickle down to how you craft a path forward around saudi arabia . Mohamad i think for saudi arabia, the key factor is the index inclusion. You are not going to face any outflows from emerging markets from the way you will see from other emerging markets as the if the fed tightens very quickly. The banks would benefit from rising hikes with respect to the dollar. There are some plays in saudi arabia, but i think you have to be very selective and cannot just buy and hold the market for the longterm. You have to be active and trade around index events. Shery how will vision 2030 play into r. O. E. , return on equity recovery in the market . Mohamad i think we are expecting some recovery at the base of fact for some of the sectors, but for the banks, it will come when we see a pickup in along the growth. We have not seen that yet. Wth. N long groqw we have not seen that yet. When the government starts relying more on the private sector to Fund Infrastructure spending, that is when you will see r. O. E. Recovery for the banks and the index, because banks are the heavyweights. Until you see that growth, i think the r. O. E. Will be there. Shery we are seeing oil prices gaining every day, adding to those gains we have seen. What about petrochemicals . Where do we stand there . Mohamad i think i will call on the sector as neutral valuations are rich on this level. The company is at the end of the deleverging cycle and there is scope. It could grow in the coming years. That is one name we like. For the other names, the valuations are rich and not much upside. Shery lets talk a little more about the saudi retail sector. We are seeing some headwinds on that industry, but also at the same time, we have just had the ramadan holiday period and the reinstatement of employee benefits. How will all of this affect the outlook for the Retail Industry in the kingdom . Mohamad as the chairman said, our view on the sector is in both staples and discretionary, you will see more conservation in saudi arabia. Longterm, the smaller stores, because of the requirements, they will not be able to cope as easily with those requirements as the big stores. As such, you see more small retailers closing down. The big stores will be gaining market share and that will help in terms of stock growth. In addition to that, the restatement of Public Sector employees is going to be positive for discretionary and stable consumption. However, the expat levee over the next four years will be rising. It will be paid by the expats worker himself and that will put pressure on expat spending. As you know, expat population is about one third. Other countries are more dominant, but it will have an impact on growth as well. Yousef for the expats and across the Consumer Spending public, if you want to call it that, there is the reality that at one point in time, you had bonuses and grants being taken away from the government. And then a few months later, you have a restoration of benefits. You cannot turn sentiment around like you are flipping a coin. This will take some time to really change again and before it gets reflected Going Forward . Mohamad Quarterly Results so far have been good. Maybe it actually beat our estimate by 7 . But there is growth. I think in terms of the general economy, what you need to see is growth. The economy has been very muted. We have not seen major infrastructure spending. You have not seen regrowth in the economy and sentiment is weak. This is evident from value traded in the saudi market by Retail Investors which is a good proxy on how they feel of feel of the local economy. You only saw a pickup during the announcement but saudi arabia has been quite muted. Yousef the rest of your portfolio recommendations, as part of the research you are doing, youre going underweight egypt. Why . Mohamad we are still overweight egypt. We went overweight saudi arabia ahead of the msci announcement. But we went back to underweight now after the jobs you saw. In terms of the rest of the portfolio, i think egypt remains one of the strongest stories in mina. That is where you will see the biggest earning growth as the Reform Program develops. That is where we are most excited about. Kuwait is also an interesting market to look at. For the rest of the region, you have to be very selective. Yousef coming up on the best of Bloomberg Markets come middle east the National Bank of oman , staved off a ratings downgrade as the rest the state and a negative outlook. Youre from the salt and the one of the biggest banks. Yousef welcome back to the best of Bloomberg Markets middle east. Earlier this month, the outlook of five oman banks negative. However, one that dodged that is the National Bank of oman. We spoke to the ceo. Ahmed it has 70 branches and 190 atms and cash deposit machines across the uae. And saving approximately 500,000 customers. We focus on five key segments. Retail banking, corporate banking, Investment Banking, Treasury International and Islamic Banking. When we look at the results for the first half of 2017, we need context. It has been three years since mbo implemented a fiveyear growth strategy, centered on bringing superior customer experience. We want to be the bank of choice. If we look at the context, went we need to look at the last three years. The last three years, nbo has been proven to be resilient and reflects the market here in oman. The stability of the market the Banking Sector has remained intact despite challenging conditions. The quality of the banks continue to be strong. For us, we maintain a diverse portfolio and sustained superior profitability compared to our peers. Not just in oman, but across the region. Yousef i will jump in here to pick up on what you are saying. You are saying you are resilient and diversified. What does the road ahead look like in terms of expansion plan, in terms of acquisitions . What will keep that growth momentum for the bank . Ahmed actually for our key Strategic Priorities today, that is based on the fiveyear plan we put three years ago, our key Strategic Priorities is to delivered superior customer experience. To scale up from digitization. It is becoming a big part of our business. Three, diversify income streams. You can see in our first half of the year results, we have been able to diversify income streams and bring more income and reduce less dependence on interest to income. We are actually continuously reducing the use of the Balance Sheet and extend other capabilities to build on other types of income. Shery when you say diversifying ahmed yes . Shery sorry to jump in, when you say diversifying, you also mentioned Islamic Banking a while ago but for your business, it was only 4 of revenue last year. Does that mean you will try to expand that role . Ahmed absolutely. The Islamic Banking window has performed superbly well in the first half of the year. In the meantime, they have been able to maintain superior asset quality with a ratio of just 4 despite challenging microeconomic conditions. If i could actually talk about and then be oh nbo performance in terms of the profitability, return on assets returns on the high side compared to our peers locally and regionally. The ratio yousef i will jump in. You talk to some of the metrics there. To recap as well on the impact of the standoff that is ongoing with the saudi led bloc and qatar, how will that change your road ahead . Do you need to adjust some of your business elements there . Ahmed yes, i just hope that has been resolved soon, for us as a bank, we are very much focused on those key Strategic Priorities i just explained to you. On delivering superior customer experience, scaling up through digitalization, diversifying our income streams, improve operational efficiency, and enhancing the discipline and rejuvenate the brand appeal. But in the meantime, it is important to see and actually analyzed in the context of the World Outlook for oman ever since the oil price started going down. Yes, the Oil Price May continue to be subdued for an extended period of time but oman has made plausible strives in diversification to reduce its dependence on oil and gas. Currently yes . Yousef i apologize for jumping in again. We want to get through so much with you this morning. We talk about some other realities on the ground in oman in terms of how the market is performing. It is the worstperforming market so far this year. It is even worse than qatar. Why do you think the oman investment story has not been at the top or forefront for Foreign Investors . Why has it gone out of favor . Ahmed you look at the promise of the market in oman, particularly the stock market. The valuations are very good. The fundamentals are still very sound. The sentiment is not really not necessarily helping. Over the coming quarters and months, we will get out of that. Yousef the United States has a has grudgingly acknowledged that iran is complying with the nuclear agreement, but not the spirit of the agreement, but went ahead and pulled fresh sanctions on actions outside of the broader nuclear agreement. Charlie rose got information from the prime minister. Mr. Javad zarif the United States has had a hostile policy towards iran for some time. This administration is set to be is certainly pursuing an even more hostile policy. I think it is a misguided policy. I think the allegations against iran are tired, dont stand any test in reality. I think it would be best for the United States the u. S. Should just look at its achievements in our region and see what it has achieved. It has made all the wrong choices. Its allies are accusing each other of supporting terrorism. I believe the United States needs to take a fresh look at the situation in our region and see where its interests are. How its dealing with important issues of stability and security in our region. And decide for itself what it where it wants to stand. Charlie as you know at the , the summitn riyadh in riyadh, saudi arabia and some of the arab state allies asked the United States to join them in isolating iran. They believe you engaged in these activities that the United States adjusts you as well. Mr. Javad zarif i want to ask you who was behind the 9 11 terrorist attacks . Charlie individuals or the state of saudi arabia . Mr. Javad zarif we know individuals came from saudi arabia. 15 of them. We also note the ideology came from saudi arabia. The wahabi ideology. If you check from 2001 until now or even 1998 to now, almost 94 if not more of terrorist incidents throughout the world have been instigated and perpetrated by people belonging to that school of thought, which is the official ideology of saudi arabia and promoted across the globe, spreading extremism everywhere. Yousef coming up, abu dhabis National Oil Company has picked a team of banks to sell off its service stations units. An ipo which could bring 14 billion. We have the details next. This is bloomberg. Yousef welcome back to the best of Bloomberg Markets middle east. Abu dhabi National Oil Company is said to have chosen underwriters for its sales, choosing several banks to help with its listing, and specifically of its service station unit. We get more from matthew martin. Matthew what we revealed yesterday is that they have now got on board with the band with the bank to manage. They have appointed bank of america, citigroup. And first abu dhabi bank, the first merged bank. They will be the ones managing this. Things are moving very quickly on this. This is increasingly looking like a less me too, look at abu dhabi copying what saudi arabia is doing with the ipo of aramco, and looking far more advanced in the process of getting this ready. They got the banks on board. It is a more digestible trade for the market then aramco is. Which is obviously going to be huge. A march and it could actually end up getting to market first which would be a very interesting dynamic. Shery speaking about underwriters and advisers, we are hearing they will be hiring more relationship managers in saudi arabia. We already saw that from Deutsche Bank which says the country is a priority for them. Why are we seeing this big push in the Wealth Management area in the saudi arabia market . Matthew the banks that we are seeing doing this, the likes of Deutsche Bank and credit suisse, are obviously facing a lot of problems back home. They have been going through very difficult times. They have been casting around for a new strategy, new market to find growth. Private banking is one of those areas which is a really part of which is a really key part of the strategy for Deutsche BankGoing Forward. Saudi arabia is an obvious market because it is a place where they probably have been underrepresented in the past. Given the historical franchise and good reputational that they have had, it is a good place for them to go to try to get more money and growth out of that market. Yousef lets talk about what is happening on the crude oil front. There is rarely a week that passes we dont see very interesting price movements. Just in terms of where we are at with u. S. Crude oil production, and what ive highlighted here is obviously your line in blue late winds up again as of you have the u. S. Will friday. Production for the department of energy. The trend for both is a trend that is increasing. That is what makes the rebalancing story so challenging. Lets get the story on some of the main drivers. Our Energy Reporter joins us. Anthony, oil rebalancing, how much progress are they really making . Anthony good morning, yousef and tracy. The market is balancing. It is balancing at a price that is lower than what opec wants so we are stuck in that range around or below 50. We are seeing some progress already last week in some of the numbers out of the u. S. Showing stockpiles decreasing out of crude and other products. The products are important because it shows there is a hold for the consumers in the summer demand period. We do see some progress there, but it is not enough. It is not what opec wants as we are still below 50 a barrel. But we do see that shale continuing and forecast of shale continuing to come on. That is going to be a constant challenge that will keep the market well surprise well supplied. But the stock growth shows us there is less supply coming into the market and there is demand for now. Yousef that is it for the best of Bloomberg Markets middle east. We have a busy week coming up in the region. We will be covering the opec deliberations in st. Petersburg. The middle still in of earnings season, so we will see the quarterly numbers. Well be here for the start of the trading week in the gulf on bloomberg television. Im yousef gamal eldin. Do join me then. This is bloomberg. Vonnie coming up on bloomberg best, the stories that shaped the week in business around the world. Major banks beat earnings estimates but there is more to the story. I think it was a little that worse, but equities are better. Vonnie Central Banks meet to set policy. And investors read between the lines. Of another taper tantrum for the moment. Vonnie some big firms make outside hires as others boom from within. Health care throwing the trump agenda for a loop. 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