UAE banks among top per­form­ing in GCC

BANKS IN RE­GION WELL-PO­SI­TIONED TO WEATHER CUR­RENT CHAL­LENGES ON THE BACK OF RO­BUST AS­SET GROWTH, KPMG SAYS

Gulf News - - FRONT PAGE - Busi­ness Ed­i­tor BY BABU DAS AU­GUS­TINE

Gulf banks well po­si­tioned to weather the chal­lenges

The lo­cal bank­ing sec­tor con­tin­ues to show strength and re­silience as top UAE banks re­ported the re­gion’s high­est growth in their as­set base of 19.5 per cent, ac­cord­ing to a re­port by KPMG.

The study showed UAE’s top ten banks re­ported pos­i­tive re­sults in 2019, with an av­er­age 13.9 per cent growth in net profit, the high­est among GCC coun­tries, driven by an in­crease in the over­all loan book and in­or­ganic growth.

The UAE’s Emi­rates NBD re­ported the high­est net profit across the GCC, at $3.94 bil­lion (Dh14.5 bil­lion), and the high­est re­turn on eq­uity at 21.8 per cent.

“The UAE bank­ing sec­tor has re­mained re­silient, with over­all good per­for­mance from the top ten listed banks. These pos­i­tive fi­nan­cial re­sults, cou­pled with the in­creas­ing fo­cus on ‘digi­ti­sa­tion’ in the re­gion, have re­sulted in a move to­wards a more in­no­va­tive ap­proach in “new age bank­ing,” said Ab­bas Bas­rai, Part­ner and Head of Fi­nan­cial Ser­vices at KPMG Lower Gulf.

Ac­cord­ing to the KPMG study, the GCC bank­ing sec­tor con­tin­ued to re­main rel­a­tively re­silient de­spite po­lit­i­cal and eco­nomic un­cer­tainty in the re­gion and across the globe. As­set growth re­mains ro­bust as banks achieved dou­ble-digit growth at 12.8 per cent. Growth was driven by in­creased lend­ing that grew by 11.8 per cent.

The loan books in­creased by 11.8 per cent on an av­er­age as com­pared to 2018 re­flect­ing the con­tin­u­ous growth and ac­tiv­ity that banks are both ex­pe­ri­enc­ing and sup­port­ing across the re­gion. Prof­itabil­ity also con­tin­ued to see a dou­ble-digit in­crease of 16.9 per cent com­pared with 2018, driven par­tic­u­larly by a growth in loan books, a lower cost of funds and a con­tin­ued fo­cus on cost ef­fi­cien­cies.

Cap­i­tal ad­e­quacy ra­tio have in­creased slightly year on year by an av­er­age of 0.1 per cent and cur­rently stands at 18.5 per cent on av­er­age – well above the min­i­mum reg­u­la­tory re­quire­ments.

“Banks per­formed well in terms of as­set growth and prof­itabil­ity in 2019, which is re­flected in both fun­da­men­tals and mar­ket sen­ti­ment with share prices of 42 banks out of 55 show­ing an up­ward trend as com­pared with the pre­vi­ous year,” re­port said.

Covid-19 chal­lenges

KPMG noted that Covid-19 is hav­ing an un­prece­dented im­pact on fi­nan­cial mar­kets glob­ally and lo­cally and cre­at­ing a unique sit­u­a­tion for the in­dus­try. In the wake of the Covid-19 pan­demic, the Cen­tral Bank of the UAE an­nounced sev­eral re­lief pack­ages. Banks must con­tend with many new reg­u­la­tions, as well as meet con­sumer de­mands for in­no­va­tive,newdig­i­tal­bank­ing­prod­ucts.

The over­all long-term out­look for the GCC bank­ing sec­tor has moved from pos­i­tive to sta­ble ac­cord­ing to KPMG. Banks are well po­si­tioned to weather the cur­rent eco­nomic and po­lit­i­cal chal­lenges, given the ex­pec­ta­tion of con­tin­ued gov­ern­ment sup­port and com­mit­ted in­fra­struc­ture in­vest­ment, which will be some­what off­set by un­cer­tain­ties aris­ing from oil prices fluc­tu­a­tions and the Covid-19 im­pact, re­sult­ing in sta­ble growth in the sec­tor.

Lim­ited credit growth

With the chal­leng­ing po­lit­i­cal and eco­nomic en­vi­ron­ment and in­creas­ing reg­u­la­tory re­quire­ments, banks will con­tinue pur­su­ing a more mea­sured ap­proach in their lend­ing ac­tiv­i­ties and look to fo­cus on the higher-end cus­tomer base. Credit growth is not ex­pected to pick up sig­nif­i­cantly from last year given the eco­nomic im­pact of Covid-19 and sig­nif­i­cant fall in oil prices. In fact an­a­lysts ex­pect banks to ex­plore pos­si­ble non-per­form­ing loan sales to man­age their NPL ra­tios.

Sus­tain­able profit growth

The up­ward trend in prof­itabil­ity of GCC banks is ex­pected to con­tinue in 2020, although not nec­es­sar­ily at the dou­ble digit lev­els wit­nessed in 2019. The growth is likely to be mod­est and tem­pered by slower loan growth, shrink­ing profit mar­gins and ris­ing loan pro­vi­sion­ing un­der the ex­pected credit loss regime mainly driven by the eco­nomic im­pact of Covid-19.

Given the mar­gin pres­sures banks have ex­pe­ri­enced across the re­gion in 2019, KPMG ex­pects cost and op­er­a­tional ef­fi­cien­cies to re­main high on the man­age­ment agenda. Banks are likely to look at more so­phis­ti­cated ways in which costs can be man­aged through the use of ro­bot­ics, an­a­lyt­ics and fin­tech amongst oth­ers.

We do not ex­pect cap­i­tal and fundrais­ing ac­tiv­ity to pick up in 2020, given the un­cer­tain­ties re­sult­ing from COVID-19 and the fact that reg­u­la­tors are re­lax­ing the min­i­mum cap­i­tal ad­e­quacy and liq­uid­ity re­quire­ments in-line with more de­vel­oped mar­ket for the short term. Some banks will how­ever look to tap into bond mar­kets to take ad­van­tage of the low in­ter­est rate en­vi­ron­ment in the sec­ond half of the year.

Ahmed Ramzan/Gulf News

Emi­rates NBD re­ported the high­est net profit across the GCC, at $3.94 bil­lion, and the high­est re­turn on eq­uity at 21.8 per cent.

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