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$10.9bn GAINS IN FIRST QUARTER

GCC banking sector profits surpass pre-Covid levels

DUBAI, June 9, 2022

GCC banking sector continued to record growth during Q1-2022 backed by solid economic recovery and demand post the pandemic, a report said. 
 
The banking sector net profits showed one of the strongest q-o-q growth during Q1-2022 with a growth of 25.1% to reach one of the highest quarterly levels at $10.9 billion as compared to $8.7 billion during Q4-2021. The y-o-y growth was also strong at 30.7%, said the Kamco Invest GCC Banking Sector Report - Q1-2022.
 
In addition, for the first time, profits surpassed pre-covid high net profits of $10.2 billion reported in Q3-2019. That said, profit growth was mainly driven by lower costs during the quarter as well as a fall in provisions booked during the quarter. Topline, on the other hand, remained almost flat as compared to the previous quarter.
 
Profits reported by Saudi Arabian banks reached one of the highest quarterly levels of $3.9 billion as compared to $3.3 billion in Q4-2021 and $3.2 billion in Q1-2021. UAE and Omani Banks showed a growth of 27.1% and 25.5%, respectively, it said.
 
The gain in oil prices since the start of the year also supported growth and business confidence as governments across the region stepped up economic investment plans backed by the additional oil earnings. Moreover, the fiscal policies in the region and globally that were implemented last year with an aim to boost investments also supported investment in businesses, said the report.
 
Aggregate net profits for the sector soared to $10.9 billion in Q1-2022, one of the highest
quarterly levels on record, backed by higher profits across the GCC. Banks in five of six
countries reported double-digit aggregate growth in profits while Kuwait’s growth was only slightly lower at 9%. The y-o-y performance also showed healthy growth in profits across the markets.
 
Bottomline was supported by marginal growth in net interest income and flattish non-interest income. Also supporting was a q-o-q drop in cost-to-income ratio that came at 39.6% led by a steep q-o-q drop in operating expenses. Shareholders’ equity on the other hand showed a much smaller q-o-q growth of 0.4% during Q1-2022 to reach USD 355.2 Bn. This resulted in a return on equity of 10.8% in Q1-2022, one of the highest on record for the sector in the GCC.
 
Loan loss provisions
The increase in profit was also supported by a steep q-o-q decline in loan loss provisions
booked by banks in the region. Total provisions dropped by a quarter to $2.9 billion during Q1-2022 as compared to $3.8 billion in Q4-2021, whereas the y-o-y decline came in at 21.4%. 
 
All countries in the GCC reported double-digit q-o-q drop in provisions during Q1-2022 barring Kuwaiti banks that reported a marginal increase of 0.6%.
 
Lending activity remained robust during Q1-2022 resulting in record high loan books at the end of the quarter. Aggregate gross loans reached $1.8 trillion, up 2.1% q-o-q and 10.1% y-o-y, mainly led by strong growth in Saudi Arabia and UAE that was partially offset by a decline in gross loans mainly by Omani and Bahraini listed banks. Net loans showed a slightly higher growth of 2.5% q-o-q to reach $1.68 trillion, backed by growth in all markets, barring Bahraini banks that reported a decline of 2.1%. 
 
Customer deposits also showed growth, albeit slightly smaller at 1.7% q-o-q and 9.9% y-o-y during Q1-2022 to reach $2.1 trillion. The sequential growth was led by strong growth in Saudi Arabia and Qatar partially offset by a decline in Bahrain. 
 
The net impact on the loan-to-deposit ratio was a q-o-q gain of 60 bps to regain the
80% mark with the ratio at 80.5%, the report said.
 
This report analyses financials reported by 59 listed banks in the GCC for the quarter ended Q1-2022. Data for individual banks have been aggregated to the country level. 
Some of the key observations from the most recent financial quarter for the GCC Banking Sector includes the following:
Oil price gain supports overall health of the economy with spillover effects on banks. Economic growth in the GCC showed better-than-expected recovery in 2022 mainly backed by elevated oil prices and higher volumes that enabled governments to increase investment in the economy. 
 
The IMF highlighted this while upgrading its 2022 real GDP forecast for Saudi Arabia by 280 bps and for GCC by 220 bps to 7.6% and 6.4%, respectively. GCC oil GDP is expected to grow by 10.1% during the year while non-oil GDP is expected to grow at 3.9%. 
 
Moreover, recent economic data has showed 9.9% y-o-y GDP growth rate for Saudi Arabia in Q1-2022, highest since 2011, with expectations of sustained activity by the end of the year. Consensus estimates show GCC real GDP growth of 6% this year, one of the highest over several years. 
 
In addition, inflation in the region remained significantly below the record levels seen in the US and Europe. The increase in consumer prices ranged between 1.6% and 4.3% during Q1-2022. 
 
Data from GCC central banks’ monthly publications also showed growth in credit disbursements in Kuwait, Saudi Arabia, Qatar, Bahrain and Oman. Data for UAE was not available at the time of writing this report, it said.
 
Loans related to the real estate sector, which accounted for the bulk of the personal credit facilities, showed strong q-o-q growth during Q1-2022 in Saudi Arabia and Kuwait while it remained flat in Qatar. In Saudi Arabia, real estate loans increased by 6.8%, the strongest in the GCC followed by Kuwait at 2.4%.
 
Aggregate return on equity (ROE) for the GCC banking sector continued to show improvement during Q1-2022 reaching an 8-quarter high level of 10.8% as compared to 10.4% at the end of Q4-2021. However, the ratio remained relatively low as compared to pre-pandemic levels of over 12%, it said.
 
The ratio also improved in terms of y-o-y comparison by strong 260 bps supported by an increase in aggregate 12-month profitability. Total shareholder equity reached $355.2 billion, after increasing by 0.4% from the previous quarter. On the other hand, net income improved across the board mainly led by a drop in LLPs coupled with lower cost-to-income ratio, the report highlighted. -TradeArabia News Service
 



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