GCC banks: Back to basics
dubai — The GCC banking sector, which clocked in a 6.4 per cent year on year credit growth in 2016, will continue to pursue a cautious stance on loan book growth and will only expand it opportunistically as focus remains on preserving asset quality and maintaining profitability, a banking outlook report said.
The credit growth, which is the lowest growth rate recorded in the last six years, peaked in 2012, with growth rate touching 14.1 per cent and since then has been on a downward trend. “However, 2016 saw the fastest decline in credit growth rate,” U Capital said in report.
“We believe that the general macroeconomic outlook for the GCC countries dictates a cautious stance over 2017, improving to a cautiously optimistic stance beyond the year, on recovery in oil prices as well as sovereign revenue diversification efforts to bear fruition,” said Hettish Karmani, head of Research, U Capital.
Moody’s Investors Service, which has given a stable outlook for 2017 on the region’s banking sector said it reflects the expectation of the banks’ resilience to persistent economic and funding pressures.
The outlook expresses Moody’s expectation of how bank creditworthiness will evolve in the GCC over the next 12-18 months. “While operating conditions for banks in the GCC will remain challenging, the stabilisation of oil prices, albeit at a low level, and resilient non-oil sectors will moderate pressures on the
banking sector from slowing economic growth, fiscal reforms and spending cuts,” said Moody’s vicepresident Olivier Panis.
Asset quality is likely to remain solid across the GCC, with the rating agency forecasting non-performing loan ratios to remain at three-four per cent in 2017. It also notes that banks in the GCC still have high single borrower and sector concentrations.
BMI Research forecasts that a combination of lower oil prices, reduction in capital expenditure and increased drawdowns in government deposits is squeezing liquidity and will impact on Gulf banks’ performance during 2017.
Aggregate credit is to expand by only 5.5 per cent this year, the report said, which is significantly below the average 11.4 per cent recorded between 2011 and 2015.
A U Capital report said banking sector net profit data indicated that in 2016, Kuwaiti and Bahraini banks flouted the GCC-wide trend of flat or negative net profit growth, with their combined net profits growing by 6.1 per cent and 3.9 per cent year on year for Kuwait and Bahrain respectively. “For Kuwait’s banks, it is a remarkable growth rate as the banks previously reported 5.1 per cent growth in combined net profits over 2014-15. For Bahraini banks also, it is commendable that they reported a marginal increase in net profit growth during 2016 as compared to 3.5 per cent growth in combined net profits.
Qatari banks posted flat combined net profit over 2015-2016 compared to a 4.3 per cent year on year growth posted over the previous year. Omani banks posted a 1.5 per cent decline in combined net profits in 2016, whereas 2015 growth outshone their GCC banking counterparts at a commendable 9.2 per cent. Saudi banks posted a 3.4 per cent decline in combined net profits in 2016, compared to a 5.1 per cent growth over the previous years. Similarly, UAE banks posted a 5.2 per cent decline in 2016 combined net profits, as compared to a 7.1 per cent growth posted over 2014-15.
“Overall, the entire GCC banking sector posted a 2.4 per cent decline in combined net profits at $30.47 billion in 2016 as compared to a 5.6 per cent growth over 2014-15,” the U Capital report said.
The report noted that within the GCC, the UAE and Saudi Arabia have the largest market share at 30.5 per cent and 30.27 per cent, respectively, followed by Qatar. However, in 2016, the UAE credit growth fell dramatically to 5.6 per cent, U Capital said in its report.
Saudi Arabia also saw a dramatic fall in its credit growth in 2016 with growth falling from a high 8.4 per cent. Its credit growth also peaked in 2012 at 17.9 per cent.
“Qatar, however, flouted the industry-wide trend of credit growth decline, and clocked in a whopping 21.5 per cent credit growth rate in 2016,” it said.
Deposit growth seems to have bottomed out; it might improve form hereon, said the report. Saudi banks have the largest market share of customer deposits within the GCC banking sector, at 33.3 per cent of the total, closely followed by the UAE at 30.6 per cent. Qatar has 17.3 per cent market share of GCC banking deposits, followed by Kuwait at 9.2 per cent, Bahrain at 6.2 per cent and Oman at 3.4 per cent.
Country-wise analysis of deposit growth trends reveals that for Saudi banks, FY16 has been the worst year as deposits increased only by 0.9 per cent. Banks in the UAE also saw a slowdown in deposit growth at 7.1 per cent compared to 8.2 per cent seen in 2015. “However, the deposit growth decline seems to have slowed down, although we don’t believe that the worst is over,” said the report.
According to U Capital, the GCC banking sector loan-to-deposit (LTD) ratio is on the rise. The LTD of the entire listed GCC banking sector is now hovering at a high of 91.5 per cent, up from 85.2 per cent in 2013. A country-wise breakdown indicates that Oman (105.9 per cent) and Qatar (104.6 per cent) have the highest ratios within the GCC as at the end of 2016.
Even though the average LTD for GCC has been on the rise, countrywise breakdown indicates that the ratio has actually been improving for the UAE, where the ratio is down from a high of 98.2 per cent in 2011 to 91.2 per cent as of 2016, said U Capital.