GCC banks record double digit profit growth in Q2

On a year-on-year basis, net profits of banks in Kuwait surged 23.3 per cent in the second quarter, while those of banks in the UAE, Qatar, and Saudi Arabia increased 20.8 per cent, 13.4 per cent, and 3.5 per cent respectively, Global Investment House, or GIH, said in a report. The report came in the wake of findings that the top ten GCC banks, including three from the UAE, are among the fastest growing globally.

The three UAE banks in the GCC top 10 witnessed a sharp pickup in activity over the last year, especially in the real estate and services sector in Dubai, according to a report by Qatar National Bank, or QNB, Group.

The GIH report said loan book growth among GCC banks continued to remain strong; it increased 13.9 per cent to $631.2 billion in the second quarter. Banks in Qatar registered the highest growth of 23.1 per cent year on year, followed by those in Kuwait (18.6 per cent) and Saudi Arabia (13 per cent). Due to gradual easing of margin pressure, net interest income (NII) of GCC banks rose 12.9 per cent. Robust loan book expansion supported top-line growth. NII growth was led by Qatar-based banks (up 30.6 per cent), followed by those in Kuwait (18.0 per cent) and the UAE (10.3 per cent).

Improved performance of GCC capital markets as well as winding up hedging positions (in case of UAE banks) led to an increase in non-interest income during the quarter. The segment grew 14.5 per cent in the second quarter, with fee income rising 8.6 per cent. Banks in Qatar registered the strongest growth in non-interest income (up 29.4 per cent), followed by those in the UAE (22.3 per cent) and Kuwait (21.5 per cent).

According to GIH, the asset base of GCC banks expanded 14.1 per cent to $994.8 billion in the quarter with all the countries witnessing double-digit year on year growth. Increase in loan book supported the overall asset growth. QNB report said the GCC provided a strong macroeconomic operating environment for the banking sector to flourish. High hydrocarbon prices support revenue streams for project spending and surplus foreign assets.

“The growth in assets of GCC banks remains strong, notwithstanding the current emerging market crisis. Overall, assets of the top 10 GCC banks grew by 16 per cent in 12 months to end–June 2013 to reach $743 billion. This growth was driven by strong oil prices and high nonoil economic activity. At the same time, large-scale government spending on major projects across the region, particularly in Qatar and Saudi Arabia, created significant banking opportunities,” the QNB report said.

QNB said GCC banks have largely escaped this global liquidity crunch as the region has only limited dependency on foreign capital for its funding. “Strong hydrocarbon revenue and surplus foreign assets built up by GCC authorities provide ample resources for continued government spending on infrastructure and guarantee ongoing systemic support for the banking system. This improves the operating environment and outlook for the banking sector and helps insulate the region from the emerging market crisis.”

The report said all the leading GCC banks are therefore likely to continue their strong performance in 2013 and beyond.

“In addition, the largest GCC banks comfortably meet capital requirements (the average Tier 1 Capital ratio amongst the top ten GCC banks is 16 per cent); have strong asset quality (the average ratio of non-performing loans (NPLs) to total loans is 1.9 per cent excluding Emirates NBD, which has NPLs of 14 per cent); and robust profit growth (average profit growth was 16 per cent in the year to end-June 2013).”

According to QNB Group, this adds further comfort to the view that the top GCC banks are well insulated against the emerging market turmoil that is currently captivating global financial markets.