TOKYO/SINGAPORE: Oil prices eased on Thursday as concerns over weak demand in China, the world’s largest crude importer, and expectations of a nearing ceasefire deal in the Middle East overcame gains in the previous session after draws in US inventories.

Brent crude futures for September fell 59 cents, or 0.7 percent, to $81.12 a barrel by 8:30 a.m. Saudi time. US West Texas Intermediate crude for September slid 61 cents, or 0.8 percent, to $76.98 per barrel.

Both benchmarks settled higher on Wednesday, snapping consecutive sessions of declines after the Energy Information Administration said US crude inventories fell by 3.7 million barrels last week. That compared with analysts’ expectations in a Reuters poll for a 1.6-million-barrel draw.

US gasoline stocks dropped by 5.6 million barrels, compared with analysts’ expectations for a 400,000 draw. Distillate stockpiles fell by 2.8 million barrels versus expectations for a 250,000-barrel increase, the EIA data showed.

“Despite draws in US crude and gasoline stocks, investors remained wary about weakening demand in China and expectations of advancing ceasefire talks between Israel and Hamas added to pressure,” said Hiroyuki Kikukawa, president of NS Trading, a unit of Nissan Securities.

This year, China’s oil imports and refinery runs have trended lower than in 2023 on weaker fuel demand amid sluggish economic growth, according to government data.

Slumping US stock markets also reduced traders’ risk appetite, Kikukawa added. All three main indexes on Wall Street ended lower on Wednesday.

In the Middle East, efforts to reach a ceasefire deal to end the war in the Gaza Strip between Israel and militant group Hamas under a plan outlined by US President Joe Biden in May and mediated by Egypt and Qatar have gained momentum over the past month.

On Wednesday, Israeli Prime Minister Benjamin Netanyahu sketched a vague outline of a plan for a “deradicalized” post-war Gaza in a speech to US Congress and touted a potential future alliance between Israel and America’s Arab allies.

“If Middle East ceasefire talks progress, US equities continue to slide, and China’s economy remains sluggish, oil prices could fall to early June levels,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

Additionally, clarity on US interest rate cuts is missing, said Phillip Nova analyst Priyanka Sachdeva, who does not expect robust demand given China’s economic recovery has been poor.

The US Federal Reserve is expected to cut rates just twice this year, in September and December, according to a Reuters poll of economists, as resilient US consumer demand warrants a cautious approach despite easing inflation.

Lower interest rates should spur economic growth, leading to more oil consumption.

In Canada, hundreds of wildfires are burning in the western provinces of British Columbia and Alberta, including in the area of oil sands hub Fort McMurray.

RIYADH: Gulf Cooperation Council banks aim to diversify their business models and enhance profitability by entering high-growth markets such as Turkiye, Egypt and India, a new report has revealed. 

Fitch Ratings noted that this growing interest was due to favorable economic conditions and attractive growth opportunities in these countries. 

Notably, the appetite for expansion in Turkiye has increased following macroeconomic policy shifts, while interest in Egypt is fueled by enhanced stability and privatization opportunities.

Despite higher acquisition costs in these regions, the report said that GCC banks remain focused on leveraging the potential of these markets to offset slower growth at home. 

The GCC banking sector has consistently delivered high returns on equity and impressive valuation multiples compared to global standards, according to a McKinsey June report.

The strategic diversification of GCC economies beyond oil, coupled with prudent regulatory frameworks, has bolstered banking stability and profitability.

Elevated interest rates have further enhanced bank profits, contributing to their returns. Over the past decade, the region’s banks have outperformed the global average in return on equity, or ROE, maintaining an advantage of three to four percentage points during 2022 to 2023.

Although global banking valuations are historically low, GCC banks continue to generate value with ROE surpassing their cost of equity. 

Despite record profits driven by elevated interest rates for banks globally and in the GCC, McKinsey cautions executives to balance short-term gains with long-term strategic objectives.

Investing in transformative change and efficiency is essential for sustaining a competitive edge when interest rates eventually decline. 

GCC banks’ primary exposure outside their home region was concentrated in Turkiye and Egypt, where they collectively held about $150 billion in assets by the end of the first quarter of 2024, according to Fitch Rating. 

This significant presence underscores the strategic importance of these markets for GCC banks’ growth ambitions.

Additionally, there is growing interest in India, particularly from UAE-based banks, driven by the strong and expanding financial and trade links between the two countries.

Turkiye, Egypt and India each boast significantly larger populations compared to GCC countries, presenting greater potential for banking sector growth due to their robust real gross domestic product growth prospects and comparatively smaller banking systems. 

For instance, the banking system assets to GDP ratios in these countries are below 100 percent, whereas in the largest GCC markets, this ratio exceeds 200 percent, according to the report. 

Furthermore, the private credit to GDP ratios were notably lower in 2023, standing at 27 percent in Egypt, 43 percent in Turkiye, and 60 percent in India, highlighting substantial room for expansion in these banking sectors. 

GCC banks are increasingly looking to expand in Turkiye due to a favorable shift in the country’s macroeconomic policies following the presidential election last year, according to Fitch. 

These changes have reduced external financing pressures and improved macroeconomic and financial stability, prompting Fitch to upgrade its outlook for the Turkish banking sector to “improving.” 

Fitch projects Turkish inflation to drop from 65 percent in 2023 to an average of 23 percent in 2025, with expectations that GCC banks will cease using hyperinflation reporting for their Turkish subsidiaries by 2027.

The enhanced stability of the Turkish lira is likely to bolster returns on GCC banks’ Turkish operations. 

Simultaneously, GCC banks are showing growing interest in Egypt, driven by a better macroeconomic environment, opportunities from the authorities’ privatization program, and the expansion of GCC corporations in the country. 

Fitch has recently upgraded its outlook on the operating environment score for Egyptian banks to positive, anticipating greater macroeconomic stability.

This improvement is attributed to Egypt’s substantial foreign direct investment deal with the UAE, a strengthened International Monetary Fund deal, increased foreign exchange rate flexibility, and a stronger commitment to structural reforms. 

Fitch expects the Egyptian banking sector’s net foreign assets position to improve significantly this year, supported by robust portfolio inflows, remittances, and tourism receipts.

Egyptian inflation is forecasted to decrease from 27.5 percent in June 2024 to 12.3 percent in June 2025, potentially leading to policy interest rate cuts starting from the fourth quarter of 2024. 

Fitch noted that while the Egyptian banking market presents high entry barriers, GCC banks might find opportunities to acquire stakes in three banks through the authorities’ privatization program.

The expansion of GCC companies, especially those from the UAE, could also drive increased GCC bank presence in Egypt. 

However, the rising cost of acquiring banks in Turkiye, Egypt and India might pose challenges for GCC banks’ acquisition plans.

Price-to-book ratios have risen, particularly in Turkiye and India, reflecting better macroeconomic prospects and reduced operational risks. Acquisitions in these lower-rated markets could potentially weaken GCC banks’ viability ratings, depending on the size of the acquired entity and the resulting financial profile.

Nevertheless, nearly all GCC banks’ long-term issuer default ratings are supported by government backing and are unlikely to be affected by these acquisitions. In this context, economic forecasts play a crucial role in shaping these expansion strategies.

The World Bank has updated its growth projections in April for various countries, reflecting significant opportunities and risks. 

For instance, Saudi Arabia’s economic growth forecast for 2025 has been raised to 5.9 percent, up from the previous estimate of 4.2 percent, signaling robust long-term prospects. 

For the UAE it is now 3.9 percent for 2024, up from 3.7 percent, with a further rise to 4.1 percent in 2025.

Kuwait and Bahrain are also expected to see modest growth increases, while Qatar’s 2024 forecast has been reduced to 2.1 percent but adjusted upward to 3.2 percent for 2025.