Related Articles

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  Summit opens with promise to keep Cop28 commitment

  16 April 2024

  Sheikha Shamma Bint Sultan Bin Khalifa Al Nahyan, president and chief executive of the UAE Independent Climate Change Accelerators, has stressed the need for blended finance to meet the investment requirements for meeting the 1.5-degree-Celcius climate target alive.

  Al Nahyan made the statement on the opening day of the World Future Energy Summit in Abu Dhabi.

  "Blended finance can be unlocked if various stakeholders, including governments and private sector investors, agree to collaborate… and try novel financing ideas," Al Nahyan said.

  Various research agencies have highlighted the need for trillions of dollars on investments particulary in clean energy systems to keep the 1.5-degree-Celcius target alive.

  It is the first WFES summit since close to 150 countries agreed to transition away from fossil fuels at Cop28 in December.

  Al Nahyan cited the other landmark agreeements signed during the Cop28 summit including tripling the renewable energy capacity and doubling energy efficiency globally by 2030.

  Heavy rain amid adverse weather conditions in the UAE served as a backdrop to the opening day of the WFES summit this year.

  Related read: Cop28 keeps 1.5°C goal within reach

   

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  Jennifer Aguinaldo
• 
  Iraq evaluates waste-to-energy bids

  15 April 2024

  Iraq's National Investment Commission (NIC), in coordination with the Municipality of Baghdad, the Ministry of Electricity and the Ministry of Environment, is evaluating the proposals for a contract to develop a waste-to-energy plant in the Al Nahrawan area in Baghdad Governorate.

  MEED understands NIC received 13 bids for the contract on 31 March.

  An NIC spokesperson previously told MEED that 17 companies purchased the tender documents in January. 

  NIC has not issued the list of prequalified companies that can bid for the contract.

  The plant will have the capacity to treat 3,000 tonnes of waste a day and generate nearly 80 megawatt-hours (MWh) of electricity.

  It will be developed using a design-build-own-operate model.

  In early March, it was erroneously reported by local media that NIC had received 17 bids for the contract to develop the project.

  According to NIC, power generation "from mixed solid waste must be with high-efficiency and at least fourth-generation grate incineration technology with an electrical power generation efficiency higher than 30% and a landfill rate less than 5%".

  NIC invited investors and developers to qualify for the WTE scheme in August last year.

  In October, it was reported that some 42 companies had expressed interest or were prequalified to bid for the planned WTE contracts in Iraq.

  Waste-to-energy projects worth roughly $2bn are being planned in the Middle East, according to MEED Projects data.

  Construction works are under way for the $1.2bn WTE project located in a former landfill site in Warsan in Dubai.

  The concession agreement for Abu Dhabi's first WTE project in Al Dhafra was signed on 27 March.

  The capacity of the planned facility in Baghdad is comparable with that of the Dhafra WTE project, which can treat 900,000 tonnes of solid waste a year.

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  Jennifer Aguinaldo
• 
  Italian firms win Iraq wastewater design package

  15 April 2024

  Italian firms Steci and Studio Gagli Ingegneria have won the design and engineering consultancy contract for a strategic sewerage pipeline project in Baghdad.

  According to a local media report, the planned pipeline will extend 50 kilometres.

  Mahmoud Aziz, director of the Sewage Department at Baghdad Municipality, said the project includes a large pumping station and wastewater treatment plant.

  The two companies are expected to implement the design and engineering package of the project over 16 months.

  Another major sewerage project is being planned in Iraqi Kurdistan.

  The Municipalities & Tourism Ministry is expected to retender a contract to design and build a sewerage facility in the southwestern area of the city of Erbil, following an unsuccessful contract negotiation for the bid or bids it received in July 2022.

  The project budget is valued at an estimated $778m, with the Japanese Official Development Assistance (ODA) Office providing a ¥34.417bn ($317m) loan through the Japan International Cooperation Agency.

  The project involves the construction of a wastewater treatment plant with a capacity of 210,000 cubic metres a day (cm/d).

  It also covers the construction of trunk sewer pipes, primary and secondary networks and house connection pipes, and the installation of private discharge facilities and relay pumping stations.

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  Jennifer Aguinaldo
• 
  Contractors submit Neom rail depot bids

  15 April 2024

  

   

  Register for MEED's guest programme 

  Neom received the post-tender clarification bids from contractors on 4 April for the relocated Connector Depot of the rail line that links Oxagon Industrial City to the Spine.

  The facility will have two separate depots, one for the high-speed rail rolling stock and one for the freight and infrastructure rolling stock maintenance. 

  The infrastructure depot will provide facilities for storing and distributing materials required for the railway infrastructure at Neom.

  The Spine is the infrastructure corridor running parallel to The Line that includes a high-speed rail and the Connector South, which links the industrial zone, Oxagon, to The Line.

  US-based Aecom is the design consultant, and Bechtel is the project management consultant for The Spine railway network project.

  Construction work on the railway network at Neom has already started. 

  In early May 2023, a joint venture of Italy-based Webuild and Riyadh-headquartered Shibh Al Jazira Contracting (Sajco) secured a $1.5bn contract to build the Connector South line.

  The contract involves the construction of a 75-kilometre railway line, including earthworks, 14 viaducts, seven roads, nine rail underpasses, 152 pipe and box culverts, a freight line, infrastructure maintenance depots and associated facilities.

  Neom was also expected to receive bids by the end of March for the contract to provide rolling stock for the high-speed and freight railways running alongside The Line and connecting to the Oxagon.

  The infrastructure corridor will run south from The Line to Neom City Station through Neom Bay Mansions, Neom Bay airport and on to Oxagon.

  MEED reported in May last year that Neom is prioritising railway construction work as it reduces the scope of work for upcoming construction contracts on the infrastructure corridor alongside The Line.

  

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  Yasir Iqbal
• 
  UAE banks seize the moment

  11 April 2024

  

   

  After a surge in profits in 2023, UAE lenders have a positive outlook for this year. Strong capital buffers are expected to move even higher, while robust liquidity conditions provide a solid base for growing loan books.

  The UAE economy’s revival, meanwhile, continues. That will support lenders’ loan quality, with borrowers’ ability to repay loans steadily improving – albeit from a high level of problem loans, which account for an estimated 4-5% of total loans.

  The key factor in borrowers’ improved repayment ability is the UAE’s impressive non-oil performance, which has resulted in diminishing corporate problem loans.

  With legacy Covid-era challenges now substantially reduced for the UAE private sector, banks’ non-performing loan (NPL) ratios have declined across the board.

  Exposure to the property sector, considered a strategic vulnerability for lenders, is not proving problematic. Those developers with indebtedness issues are in the process of settling those.

  For example, in December 2023, Dubai-based developer Union Properties announced an AED875m ($238.3m) debt repayment to a local lender, as part of a restructuring of its loans.

  According to Moody’s Investors Service, the UAE banks’ coverage ratio, defined as loan-loss reserves as a proportion of problem loans, reached 103% in 2023 – meaning the existing stock of property-related loans is now fully covered.

  The ratings agency said this level is comparable to other highly rated GCC banking systems, providing a healthy extra layer of protection to core equity against expected losses and strengthening total loss absorption capacity. 

  However, there is a limit to the level at which NPLs will decline because of large legacy exposures and large restructurings emanating from previous cycles, where there was volatility in the non-oil space.

  Last year, non-oil growth in the UAE was around 5%. That drove greater, repayment capacity from borrowers, which was very visible in the headline NPL ratios of the banks that pretty much declined on average, says Badis Shubailat, a bank analyst at Moody’s Investors Service.

  “Still, there is some form of floor level to this decline because of the legacy exposures, and large restructurings that emanated from the previous credit cycles, during which we saw volatility in the non-oil space.”

  This structural feature keeps the UAE at a disadvantage from a comparison standpoint to the other markets regarding asset quality indicators.

  The broader profit picture in the UAE underscores the benign conditions confronting banks. The combined net income of all UAE banks increased by 54.1% in year-on-year terms in 2023, to AED76.9bn ($20.9bn).

  High interest rates and supportive operating conditions ensured that asset yields (at 6.0% according to Moody’s) outpaced the cost of funding (3.7%). Banks managed to preserve low-cost current and savings accounts (CASA) and supported wider margins at 2.6% (compared to 2.2% in 2022). 

  Profit boost

  Results from the largest UAE lenders show a massive profitability boost last year. The country’s largest lender by assets, First Abu Dhabi Bank (FAB), saw 2023 net profit reach $4.5bn, an increase of 56% on an underlying basis compared to 2022.

  Total assets increased 5% to $318bn. Dubai’s largest bank, Emirates NBD, reported a 65% increase in profit last year to AED21.5bn ($5.9bn), with a 16% increase in its asset base propelled by strong CASA increases.

  According to Moody’s, the four largest banks – FAB, ENBD, Abu Dhabi Commercial Bank and Dubai Islamic Bank, which together accounted for around 74% of total UAE banking assets as of December 2023 – reported a combined net profit of $14.3bn in 2023, up from $9.6bn in 2022.

  Analysts expect sustained profitability in 2024, given widening net interest margins and improving credit growth. Even anticipated interest rate cuts from the US Federal Reserve are unlikely to hit UAE banks hard, especially as these are only due to kick in in the second half of this year. Moreover, any interest rate reductions will likely be gradual. 

  These improving metrics prompted Moody’s in mid-March to change the outlook for the UAE banking sector in 2024 to positive from stable.

  The profitability improvement will also support banks’ capital ratios. Fitch Ratings expects the average CET1 ratio (post-dividend payments) to remain in the 13.5%–14% range, as the impact of lending growth will be broadly compensated by internal capital generation. Operating profits provide a solid cushion against any increase in the cost of risk, said the ratings agency.

  That UAE banks are mainly funded by low-cost CASA deposits – considered ‘sticky’ – is a positive for the sector’s liquidity position. Last year, noted Moody’s, customer deposits made up 78% of UAE banks’ funding base. In contrast, the reliance on market funding is a moderate 17.7% of tangible banking assets.

  Funding positions are supported by higher deposits from government-related entities (GREs), whose revenue performance has been sufficiently strong to allow them to deleverage to a greater degree.

  Last year’s aggregate deposit performances from the top 10 banks, as reported by consultancy Alvarez and Marsal, showed that deposits grew 13.4% in 2023, while aggregate loans and advances increased by only 9%. Consequently, the loan-to-deposit ratio for these banks slipped 3.1 percentage points to 74.9%.

  Some banks’ bottom lines face challenges. In March of this year, Dubai announced a 20% annual tax on foreign banks operating there, excluding those based in the Dubai International Financial Centre (DIFC). However, the Dubai authorities said the corporate tax rate will be deducted from the annual tax that foreign banks pay.

  Volatile sectors

  There remain vulnerabilities related to the construction and contracting sectors, which Moody’s notes are more volatile. It expects pockets of risks in the small- to medium-sized business segments because of high interest rates, particularly for smaller banks.

  Exposure to foreign economies such as Turkiye and Egypt is more of a risk for the larger UAE banks.

  “There is a foreign exposure story with large UAE banks, mainly in markets that have strong trade ties with the region, namely Egypt and Turkiye,” says Shubailat. “Those open avenues for growth and profitability diversification, but also present relatively less benign and more challenging environments.”

  Such risks should easily be absorbed in the grand scheme of things. With overall conditions remaining supportive and healthy profits being generated, the UAE’s banks will look to expand loan books and capture the full growth potential of a vibrant domestic market.

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  The latest news and analysis on the UAE includes:

  > Non-oil activity underpins UAE economy
  > Dubai real estate boosts construction sector
  > UAE and Kenya launch digital corridor initiative
  > UAE in talks to invest in European nuclear power infrastructure
  > Abu Dhabi’s local content awards surge to $12bn
  > Dubai tunnels project dominates UAE pipeline
  > UAE marks successful power project deliveries
  > UAE is dropped from financial grey list

   

   

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  James Gavin