Finance & Capital Market

GCC banking sector NIM declines on low interest rates

Aggregate net interest margins (NIM) for the GCC banking sector continued to slide during the third quarter of 2020 (Q3-2020) reaching one of the lowest recorded quarterly levels at 2.98%, a report said.

The decline was led by low interest rates in the region and globally coupled with a consistent growth in net loans for the GCC banking sector, said the “GCC Banking Sector Report Q3-2020” published by Kamco Invest, a leading provider of in-depth expert analyses.

NIM declined in all the GCC markets during the quarter, barring Bahrain, where data is inconsistent as Q1-2020 financials have not been released by Bahraini banks. The blended cost of fund for the region stood at 1.9% at the end of Q3-2020 vs.2.5% in Q3-19, highlighting the rate cuts implemented during H1-2020.
Net profit for the sector bottomed in Q2-2020 and witnessed a strong revival in Q3-2020 growing by 56.5% q-o-q to $7.5 billion, although it continues to remain well below pre-Covid levels. The growth was mainly led by a fall in provisions during the quarter as well as savings on cost of fund. An increase in non-interest income also contributed to the growth in quarterly profits.

In terms of balance sheet, GCC banks continued to show resilient asset growth during Q3-2020 with a sequential growth of 2.2% to reach a new record high of $2.53 Trillion as compared to $2.47 Trillion at the end Q2-2020.

In terms of y-o-y growth, total assets increased by 9.9% during Q3-2020. Listed banks in UAE reported the biggest q-o-q increase in assets during Q3-2020 with a growth of 3.2% followed by banks in Saudi Arabia and Kuwait at 2.0% and 1.9%, respectively. Asset growth was positive across the board both in terms of q-o-q and y-o-y changes.

Asset growth during the quarter was once again supported mainly by Islamic banks that grew assets at 2.6% q-o-q during Q3-2020 as compared to 2.1% for conventional banks. In terms of y-o-y growth, Islamic banks once again showed higher asset growth of 13.8% as compared to 8.7% growth for conventional banks. Meanwhile, Q3-2020 growth in earning assets were slightly below the growth in total assets at 1.4% to reach $2.09 trillion at the end of Q3-2020 as compared to $2.06 trillion at the end of Q2-2020.

Banks reported continued growth in lending with both gross loans and net loans showing sequential growth during Q3-2020. Gross loans (excluding Kuwaiti banks) increased by 1.7% quarter-on-quarter (q-o-q) during Q3-2020 to reach $1.41 trillion. Net loans (including Kuwaiti banks) also increased by 1.7% q-o-q to reach $1.52 Trillion as of September 30, 2020. – TradeArabia News Service