Banks’ consolidated earnings rise to $5.3bn

Net earnings of GCC banks under our coverage increased 4.7 percent YoY to $5.3bn in 4Q15, mostly due to higher net interest income. Net profit of banks in the UAE increased the most (11.8 percent YoY), followed by KSA (3.7 percent YoY) and Kuwait (1.1 percent YoY). However, net profit of Qatar declined 2.1 percent YoY, which partially offset the earnings growth of our overall GCC universe. On QoQ basis, net profit of the GCC aggregate declined 5.9 percent with Qatar leading the fall (-16.3 percent QoQ), followed by KSA (-6.0 percent QoQ) and Kuwait (-5.1 percent QoQ). However, UAE witnessed a sequential profit growth of 2.8 percent QoQ. The aggregate quarterly decline in profit can be ascribed to higher provisions.

Among UAE based banks, Emirates NBD reported 74 percent YoY profit growth in 4Q15 due to higher operating income and lower provisions. ADCB figure was 16.4 percent YoY due to higher net and non-interest income and lower provisions. FGB reported 10.8 percent YoY growth in net profit in 4Q15 mainly due to higher non-interest income and lower taxation and minority interest. Rest of the banks in our coverage reported disappointing bottom-line with decline in profitability in 4Q15, which partially offset the profit growth of the UAE banking universe.

Among Kuwait-based banks, Burgan Bank reported a 30.1 percent YoY growth in profits to equity holders after its divesture of Jordan Kuwait Bank. Kuwait Finance House reported 10.3 percent YoY growth in its net profit in 4Q15 due to lower provisions. National Bank of Kuwait’s net profit for 4Q15 witnessed a 6.3 percent YoY fall due to increase in the bank’s provisions. Also, Commercial Bank of Kuwait reported 12.7 percent YoY fall in bottom-line in 4Q15.

Among KSA based banks, Al Rajhi bank reported 28.2 percent YoY growth in its bottom-line due to growth in both net and non-special commission-incomes. Banque Saudi Fransi reported 11.7 percent YoY growth in bottom-line backed by similar factors. Samba Financial Group reported 0.4 percent YoY growth in profitability in 4Q15; and the remaining banks in our coverage reported a drop in their bottom-line in 4Q15.

Among Qatar based banks, Qatar Islamic Bank reported a 15.7 percent YoY bottom-line growth in 4Q15 mainly due to improvement in net and nonfinancing income. Qatar National Bank reported 3.7 percent YoY growth in its bottom-line mainly due to lower provisions. Commercial Bank of Qatar disappointed with 66.3 percent YoY fall in profitability in 4Q15.

The collective loans disbursed by GCC banks under our coverage increased by 9.1 percent YoY to $793bn in 4Q15 which was the main driver behind the net interest income which in turn grew by 5.0 percent YoY during the quarter. However, margins remained under pressure on YoY basis due to 11bps rise in the cost of funds, leading to 10bps shrinkage in NIM.

Qatar-based banks managed to maintain highest lending growth (16.2 percent YoY) due to an increase in public sector spending backed by several developmental initiatives taken by the government prior to FIFA World Cup 2020. Among Qatar-based banks, Qatar Islamic Bank, Doha Bank and Qatar National Bank registered higher growth in lending of 46.1 percent YoY, 14.5 percent YoY and 14.8 percent YoY, respectively.

Loans growth of UAE banks was at 8.1 percent YoY during the quarter. Despite, Dubai Expo 2020 on cards, lending growth of the country might get hurt due to fall in oil prices. Amongst UAE banks, Emirates NBD (10.0 percent YoY) achieved highest lending growth, followed by Abu Dhabi Commercial Bank (9.3 percent YoY) and First Gulf Bank (7.2 percent YoY).

Loan book growth of KSA was 6.5 percent YoY in 4Q15. Economic expansion and huge capital investments, particularly in the infrastructure, SME and manufacturing sectors, remain growth drivers for the loan book of KSA banks so far; however, lending growth may slow down in the coming years due to a sharp plunge in oil price. Saudi Hollandi Bank (16.9 percent YoY) recorded the highest growth in loan book, followed by Arab National Bank (11.0 percent YoY). Rest of the banks managed to maintain moderate loan book growth during 4Q15.

Kuwait based banks recorded a loan growth of 6.2 percent YoY in 4Q15. National Bank of Kuwait (13.8 percent YoY) is the only bank in our coverage which reported double-digit lending growth during the year. Loan to deposit ratio of our Kuwait coverage rose significantly during the quarter to 95 percent from 92 percent a year ago period. Also, total LDR of the Kuwait banking sector rose to 86 percent in 4Q15 from 82 percent in 4Q14. This is due to com- paratively faster lending growth in the banking system (8 percent YoY) as compared to a sluggish deposit growth of 3.1 percent YoY within the economy. Amongst our covered companies, net lending growth remained at 6.2 percent YoY as compared to a deposit growth of 2.7 percent YoY.

The net interest income of GCC banks increased 5.0 percent YoY and 0.5 percent QoQ. The NII of banks in KSA grew the most (8.1 percent YoY), followed by Kuwait (3.9 percent YoY), Qatar (3.1 percent YoY) and UAE (2.8 percent YoY). Amongst the KSA based banks, Al Rajhi Bank (25.2 percent YoY) recorded highest growth in topline, followed by Saudi Hollandi Bank (14.5 percent YoY). Among Kuwait based banks, National Bank of Kuwait witnessed a strong 14.3 percent YoY growth in its net financing income. In Qatar, Qatar Islamic Bank reported 24.1 percent YoY growth in its net financing income, followed by Doha Bank (9.5 percent YoY). Amongst UAE based banks, Emirates NBD reported 7.9 percent YoY growth in NII during the quar- ter, followed by Abu Dhabi Commercial Bank (6.1 percent YoY).

Non-interest income of GCC banks fell 6.2 percent YoY during the quarter due to 1.1 percent YoY decline in fee income and what seems like lower investment gains. UAE (7.5 percent YoY) recorded a positive change in noninterest income, while Qatar (-22.5 percent YoY), Kuwait (-16.2 percent YoY) and KSA (-0.9 percent YoY) reported decline in non-interest income. Fee income of our GCC coverage reduced 1.1 percent YoY, due to 15.8 percent YoY fall in the fee income of UAE banks. On the other hand, KSA (8.9 percent YoY), Qatar (2.4 percent YoY) and Kuwait (2.1 percent YoY) reported increase in their fee income, partially offset the overall decline.

In UAE, Emirates NBD reported 28.6 percent YoY growth in non-interest income, followed by First Gulf Bank (15.3 percent YoY). In Qatar, Qatar Islamic Bank reported 16.2 percent YoY growth in non-financing income, while all other banks reported a fall in their non-interest income. Amongst the Kuwait based banks, Burgan Bank reported 19.7 percent YoY rise in its non-interest income, followed by National Bank of Kuwait, which recorded 13.4 percent YoY growth in its non-interest income. Amongst Saudi banks, Banque Saudi Fransi reported 12.2 percent YoY rise in its non-interest income, which was offset by 15.8 percent YoY fall in noninterest income of Riyad bank and The Saudi British Bank (-7.1 percent YoY).

During the quarter, the overall operating expenses of our combined coverage grew 5.7 percent YoY to $3.6bn, primarily driven by Qatar (9.5 percent YoY), followed by Kuwait (6.4 percent YoY), KSA (2.8 percent YoY) and UAE (2.7 percent YoY). In Qatar, operating expenses of Masraf Al Rayan rose (52.5 percent YoY), followed by Qatar Islamic Bank (18.0 percent YoY) and Commercial Bank of Qatar (17.2 percent YoY). Amongst Kuwait based banks, except Kuwait Finance House, opex of all banks increased. Among KSA based banks, with the exception of Arab National Bank, all banks reported YoY growth in their operating expenses. In UAE, operating expenses of Emirates NBD rose 15.3 percent YoY, partially offset by a 12.9 percent YoY fall in opex of First Gulf Bank.

Provision expense of our GCC coverage increased 0.7 percent YoY during 4Q15. Provision expense of all the countries, except Qatar increased in 4Q15, led by KSA (22.8 percent YoY), Kuwait (4.8 percent YoY) and UAE (3.9 percent YoY). Qatar (-11.8 percent YoY) on the other hand, reported a fall in its provision expenses. Amongst Qatar based banks, Commercial Bank of Qatar reported 66.3 percent YoY fall in its provision expenses, leading to the overall fall in the country’s total provisions. Amongst KSA banks, all banks recorded a rise in provisions, led by Saudi Hollandi Bank (31.2 percent YoY), followed by Al Rajhi Bank (29.7 percent YoY) and The Saudi British Bank (21.5 percent YoY). Amongst Kuwait based banks, Gulf Bank’s provisions rose 139.9 percent YoY, followed by National Bank of Kuwait (45.1 percent YoY), which led to overall rise in the country’s provision expenses. Amongst UAE based banks, Emirates NBD reported 74 percent YoY rise in provisions, followed by Abu Dhabi Commercial Bank (16.4 percent YoY). On QoQ basis, provisions grew 55.6 percent, which led to the fall in profit of the GCC countries.

Total assets of GCC banks under our coverage expanded 7.4 percent YoY to $1.3tn in 4Q15. Qatar-based banks witnessed the strongest growth in total assets (11.9 percent YoY), followed by banks in UAE (9.8 percent YoY), KSA (3.4 percent YoY) and Kuwait (2.4 percent YoY). Expansion in asset base was supported by growth in loan book. However, on a QoQ basis, asset growth was sluggish. Among the individual banks, Qatar Islamic Bank (32.2 percent YoY), Emirates NBD (12.0 percent YoY) and Abu Dhabi Commercial Bank (11.9 percent YoY) recorded strong asset growth in 4Q15.