• Home
• /
• Business

GCC banks’ ROE posts double-digit growth on profit surge

Saudi and the UAE-listed banks reported healthy profit growth of 40.2 per cent and 52.6 per cent during the year.

Profitability for the GCC banking sector in 2021 jumped 40 per cent to $35 billion, one of the highest yearly levels, driven by an increase in total bank revenue as well as a decline in loan loss provisions.

The surge in profits although remained below pre-pandemic levels of $37 billion reported in 2019 pushed aggregate return on equity (ROE) for the GCC banking sector to a seven-quarter high.

The year on year increase in 2021 was broad based across the GCC with profits for Kuwaiti banks almost doubled to $2.9 billion, according to Kamco Invest, a Kuwait-based investment consultancy.

Aggregate ROE continued to show improvement during Q4-2021 reaching a seven-quarter high level of 10.4 per cent as compared to 9.6 per cent at the end of Q3-2021. However, the ratio remained relatively low as compared to pre-pandemic levels.

Saudi and the UAE-listed banks also reported healthy profit growth of 40.2 per cent and 52.6 per cent during the year. Higher profits also pushed the aggregate return on equity for the sector to a seven-quarter high level of 10.4 per cent at the end of 2021 as compared to 9.6 per cent in Q3-2021 and 8.1 per cent at the end of 2020.

The growth in profits was led by an increase in total bank revenue as well as a decline in loan loss provisions. Total bank revenue increased by 6.9 per cent to reach $90 billion during 2021, one of the highest on record mainly led by a growth of 17.6 per cent in non-interest income further supported by a relatively smaller growth of 2.3 per cent in net interest income. Revenue growth was broad-based across the GCC with Qatari banks reporting the biggest growth of 9.9 per cent followed by UAE and Kuwaiti bank revenue growth of 9.0 per cent and 7.1 per cent, respectively.

Listed banks in the UAE reported the biggest growth in non-interest income at 31.7 per cent, but the Emirates was the only market to report a drop in interest income during the year by 3.2 per cent.

Total shareholder equity reached $353 billion, after increasing by 1.5 per cent q-o-q. At the country level, Qatari banks continued to boast the highest average ROE of 12 per cent at the end of Q4-2021

Saudi Arabian banks were next also with a double digit average ROE of 11.1 per cent, a 30 bps gain from 10.8 per cent reported in Q3-2021. The UAE -listed banks also reported double digit ROE for the first time in six quarters at 10.3 per cent, a sharp growth from 8.6 per cent reported in Q3-2021.

Loan-loss provisions (LLP) reported by GCC banks declined by more than a quarter in 2021 to reach $14.9 billion vs. $20.4 billion in 2020. However, LLP remained elevated as compared to pre-pandemic levels with an average LLP of $9.1 billion for the 10 years preceding the pandemic (2010-2019).

The decline in LLP during 2021 was seen across the GCC barring Qatar, which reported an increase of 20.1 per cent or $0.6 billion to report provisions of $3.4 billion, the second biggest provision booked during the year after UAE-listed banks.

In terms of quarterly trend, growth in lending decelerated during Q4-2021 to a three[1]quarter-low gross loan growth of 1.2 per cent to reach $1.7 trillion. The subdued growth came after strong lending growth recorded by banks in Kuwait (+3.7 per cent) and Saudi Arabia (+2.8 per cent) were partially offset by below 1.0 per cent growth in UAE, Bahrain and Oman and a decline of 0.6 per cent reported by Qatari banks during the quarter. Customer deposits also showed a similar trend during Q4- 2021 with a growth of 1.2 per cent, also a three-quarter low, to reach $2.0 trillion. As a result, the loan-to-deposit ratio for the aggregate GCC banking sector declined marginally by 10 bps to reach a five-quarter low level of 79.9 per cent.

Loan loss provisions booked by GCC listed banks declined to $14.9 billion during 2021 as compared to a record $20.4 billion during 2020 after witnessing declines across banks in the six GCC countries, barring Qatar. The decline in provisions booked by UAE-listed banks by $2.8 billion or 34.2 per cent accounted for the bulk of the decline at the GCC level at more than 50 per cent of the total decline of $5.4 billion.

According to a Bloomberg report, the increase in provisions was due to the lingering effects of Covid-19 pandemic on business activity in the country. In terms of quarterly trend, LLP increased by 17.6 per cent quarter-on-quarter but declined by 39.2 per cent y-o-y to reach $3.8 billion during Q4-2021.

—issacohn@khaleejtimes.com