GCC banks are paving the way for a promising year, reports Zainab Mansoor
Despite the economic uncertainty posed by the Covid-19 pandemic, the GCC banking sector is on a path of recovery. Holistically, the region’s banks have had a promising past year. Total banking sector net profits reached $9.4bn in the third quarter of 2021 as compared to $8.3bn during Q2 2021, a report by Kamco Invest, which analysed financials reported by 60 listed banks in the GCC for the third quarter, revealed.
“Profits reported by Saudi Arabian banks reached one of the highest quarterly levels of $3.5bn as compared to $2.9bn in Q2 2021 and $3.2bn in Q3 2020. UAE and Qatari banks showed high single digit bottom-line growth of 7.7 per cent and 7.3 per cent, respectively,” the report suggested. “Total gross loans disbursed by listed GCC banks increased by $28.3bn q-o-q mainly led by higher lending in Saudi Arabia which increased lending by $13.9bn.
OVERALL, IN 2021 THE OUTLOOK FOR GCC BANKS WAS STABLE, AND MOVING FORWARD THE INCREASE IN ACTIVITY LEVELS WILL DRIVE CREDIT GROWTH WITH POSITIVE EFFECTS ON ASSET RISKS
“Overall, in 2021 the outlook for GCC banks was stable, and moving forward the increase in activity levels will drive credit growth with positive effects on asset risks,” notes Asad Ahmed, managing director, Financial Services, Alvarez & Marsal. “There has been some financial consolidation in the region – the UAE and Saudi Arabia come to mind. This appears to have been driven by two factors: the first is common beneficial ownership where there is an intent to align, and the second is economic. In the latter, the underlying cause could be asset driven (quality and/or size) to improving operating efficiency, and resultantly ROE.”
Meanwhile, the future of the regional banking space looking promising as well. An S&P Global Ratings report revealed that GCC banks are to benefit from regional economic recovery in 2022 on the back of higher oil prices, supportive government spending and normalising non-oil activity. The non-performing loan (NPL) ratio will rise in the next 12-24 months without exceeding 5 per cent, compared with 3.7 per cent at September 30, 2021.
“Amid a tight job market, accelerated inflation readings over the past few months, and increasingly hawkish forward guidance from the US Federal Reserve, we now expect three rate hikes in 2022. This will prompt a similar reaction from GCC central banks given their currency pegs. Banks will benefit from such an increase assuming no material impact on asset quality,” the S&P report added.
Lower global liquidity is likely to have a limited impact on GCC banks thanks to their strong net external asset positions or limited net external debt positions, it suggested. Strong capitalisation and government support will continue to reinforce banks’ creditworthiness.