GCC banks’ total assets reach $2.23 trillion during Q2

Sector revenue reaches $20.3 billion in Q2 on higher interest income

Report prepared by KAMCO

Research

This report analyzes financials reported by 62 listed banks in the GCC for Q2-19. The individual banking data has been aggregated to the country level as there are minimal differences in the countries’ regulatory and supervisory environment. We believe that the charts and tables adequately capture the nature and structure of the individual countries’ financial systems, their supervision and their monetary operations. Some of the key observations from the most recent financial for the GCC Banking Sector includes the following:

Total Assets

Total assets growth remained positive across the GCC resulting in one of the biggest quarterly growth during Q2-19. On the individual country front, UAE continues to boast the biggest share of total listed bank assets in the GCC recorded at $710bn or 31.8% of the total GCC banking assets. UAE banks also recorded the biggest q-o-q asset growth of 2.9% in the GCC. The asset growth in UAE was also aided by the merger of privately held Al Hilal Bank with ADCB and UNB bringing in its assets in the listed banks space. Saudi Arabia followed after UAE with total assets of $622bn or 27.2% of the GCC at the end of Q219 after recording a q-o-q growth of 2.5%. Among the listed banks in the Kingdom, only Banque Saudi Fransi reported a decline in assets during the quarter by 1.8%, whereas the remaining ten banks reported growth.

Loan-to-Deposit Ratio

The pace of growth in net loans declined to 0.9% in Q2-19. Banks in Oman, which reported the biggest sequential lending growth in Q119, posted the biggest drop in Q2-19 by 10.2% q-o-q. Four out of eight listed banks in Oman reported decline in lending with Bank Sohar (Sohar International) and Bank Nizwa reporting the biggest q-o-q drop. Net loans growth was the strongest in Bahrain at 2.5% followed by UAE and Kuwait at 2.1% and 1.9%, respectively. In terms of individual banks, 20 out of the 62 listed banks in the GCC reported a decline in net loans during the quarter. In UAE, National Bank of Fujairah reported the biggest growth in loans at 6.6% while bigger banks FAB and ADCB reported growth rates of 4% (adjusted) and 2.7%, respectively, ENBD’s net loans were flat at $91.2bn. Meanwhile, in Kuwait, only KFH reported a decline in net loans by 1%, whereas smaller banks outperformed with Warba Bank growing its loan portfolio by 10% and KIB adding 6.5% during the quarter. NBK’s loan growth was marginal at 1.4%.

GCC listed bank’s customer deposits growth remained positive across the board. As a result, the growth was the fastest in the last ten quarters at 2.3%, as compared to a growth of 0.6% in the previous quarter, to reach $1.68 trillion. Saudi Arabian banks reported the biggest increase in deposits at 3.3% followed by UAE and Kuwait at 2.8% and 2.2%, respectively, while Qatari banks posted the slowest growth of 0.4%. All banks in Saudi Arabia, barring Banque Saudi Fransi, reported sequential growth in customer deposits during the quarter. Alinma Bank reported the biggest growth in customer deposits at 8.9% followed by Bank Aljazira at 5.7%. NCB customer deposit growth was at a decent 4.3% q-o-q. In UAE, FAB reported the biggest growth in customer deposits adding 6.4% during the quarter to reach $105.4 bn.

The net effect of a faster growth in customer deposits relative to net loans for the GCC banks resulted in a decline in the loan-to-deposit ratio. Bahrain reported the lowest loan-todeposit ratio during the quarter that went below the 70% mark to reach 69% followed by Kuwait at 73.1%. On the other hand, Omani banks reported the highest ratio of 97.4% followed by Qatari banks at 90.4% during Q2-19.

Total Bank Revenue

Revenue for listed GCC banks reached $20.3bn in Q2-19 primarily on the back of higher net interest income while non-interest income remained almost flat at $6.0bn. Net interest income growth was strongest in Qatar which recorded a q-o-q growth of 2.8% whereas most other countries recorded marginal growth. The aggregate for the Omani banks saw a decline of 1.0% during the quarter. In Qatar, four out of the eight banks recorded a decline in net interest income during the quarter, however, QNB’s 4.3% q-o-q growth further supported by 9.7% and 5.9% growth reported by CBQ and KHCB, respectively, more than offset the decline in aggregate net interest income during the quarter. Saudi Arabian banks reported flat net interest income as compared to the previous quarter after a decline in net interest income for SAMBA, SABB and Saudi Investment Bank were completely offset by higher net interest income reported by other banks in the Kingdom. The performance of banks in UAE were also mixed as growth in net interest income reported by FAB (+6%), Emirates Islamic Bank (+5.3%) and Commercial Bank of Dubai (+2.9%) was partially offset by declines reported primarily by ADCB (adjusted) and NBQ.

Net Interest Margin

After remaining stable for three consecutive quarters at 3.2%, NIM for the GCC listed banks declined marginally during Q2-19 and averaged at 3.1%. The decline came primarily on the back of higher earning assets that more than offset higher interest income led by higher average interest rates in the GCC. Saudi Arabia has consistently grown its NIMs over the past several quarters on the back of rising interest rates. The Kingdom reported the highest NIM in the region at 3.7% followed by UAE and Kuwait at 3.1% and 3.0%, respectively. Qatar reported the smallest NIM during the quarter that stood at 2.6%. Out of the six regions, only Saudi Arabian and Omani banks reported q-o-q growth in NIM during Q2-19.

Cost-to-Income Ratio

Continued cost efficiency improvement measures implemented by GCC banks has resulted in a visible improvement in the sector’s cost-to -income ratio. The ratio has consistently declined over the past several quarters for the aggregate GCC banking sector and stood at 37.1% during Q219 for the GCC. Qatar has consistently reported the most cost efficient model with a cost-to-income ratio of 31.4% during Q219 vs. 31.5% in Q1-19 and 34.1% in Q2-18. The impact of scale was clearly visible with smaller banks in Bahrain and Oman reporting a significantly higher costto-income ratio of 48.2% and 47.4%, respectively.

Loan Loss Provision

Quarterly loan loss provision (LLP) witnessed a steep surge in the aggregate GCC banking sector reaching $3.1bn during Q2-19 as compared to $2.4bn during Q1-19. LLP increased across the board for all the GCC markets with Saudi Arabia witnessing the biggest increase in the GCC of 115% q-o-q to reach $1.2bn during Q2-19. In Saudi Arabia, almost all the banks witnessed double digit growth in LLP barring Bank Aljazira that reported a q-o-q decline. Kuwaiti banks reported the second biggest increase in quarterly LLP during Q219 that surged 21.2%.