Saudi bank stocks plunge on tax payments, Wall Street’s decline weighs on GCC markets

Saudi shares recovered some ground on Sunday after a sell-off in the banking sector when lenders said they had reached a deal with Islamic tax authorities to resolve a dispute over increased liabilities that would still result in big one-off payments.

Sentiment across Gulf markets was hurt by the plunge in Wall Street stocks on Friday as the US government shutdown weighed on global markets.

The Saudi index opened more than 2 per cent lower. At 0731 GMT, it was trading 1.6 per cent down. But by the close, the benchmark ended down by 0.3 per cent.

Al Rajhi Bank, which declined as much as 5.7 per cent in early trading, recovered, rising as much as 1.2 per cent.

“Even if banks took the right provisions for the unsettled tax, it’s a significant amount of cash leaving the banks’ balance sheets,” said Tariq Qaqish, managing director for asset management at Menacorp Financial Services in Dubai.

“While M&A deals and higher interest rates that would improve net interest margins (banks profitability) were key reasons of the outperformance of banks shares versus the benchmark, we do (see) downward risk and natural investor shift within the sector,” Qaqish said.

Saudi British Bank announced a settlement of SAR1.6bn ($426m) with Saudi authorities, while Al Rajhi Bank said its settlement would cost SAR5.4bn.

Banks have been at loggerheads with the authorities since at least the start of the year over additional payments of Zakat – the name of the tax – for years going back as far as 2002.

Saudi Basic Industries, which is the largest company on the Saudi equities market, rose 0.2 per cent, providing support to the market. Other stocks also rose, including telecom operator Zain Saudi Arabia, which rose 2.3 per cent.

The Dubai Financial Market General Index was down 1.2 per cent, dented by property stocks. Dubai’s DAMAC Properties , owner and operator of the only Trump-branded golf club in the Middle East, was down 4.5 per cent.

Dubai’s biggest developer Emaar Properties was down 3.8 per cent, while Union Properties down 5 per cent.

World stock markets fell on Friday as further hikes in U.S borrowing costs impacted investor sentiment.

Sources told Reuters on Saturday that U.S. President Donald Trump had privately discussed the possibility of firing Federal Reserve chairman Jerome Powell. Treasury Secretary Steven Mnuchin, however, tweeted late on Saturday that Trump had told him that he had “never suggested” dismissing Powell.

Abu Dhabi shares declined 0.8 per cent on Sunday, weighed by energy stocks, after Brent crude fell 2.3 per cent to $53.10 on Thursday.

Abu Dhabi National Energy Company, also known as Taqa, was down 9.5 per cent.

Qatar’s index was down 1.2 per cent with blue-chip stocks such as Industries Qatar down over 2 per cent.

Shares of Bank Dhofar rose on Sunday after Qatar’s Commercial Bank, a major shareholder of National Bank of Oman, said it was not in support of National Bank of Oman’s merger with Bank Dhofar.

Bank Dhofar’s shares rose 3 per cent, while National Bank of Oman’s shares were unchanged.

Oman’s benchmark was largely unchanged.

National Bank of Oman on Sunday said it will consider the interests of all shareholders in assessing the merits of a merger with Bank Dhofar.

“Well let us face it, the region is overbanked as a percentage of its population and requires more consolidation as a result of delicate macro outlook,” said Menacorp’s Qaqish.