Media ININ Economy We Trust
Aug 28
The Gulf banking sector witnessed continuous growth in lending operations during the second quarter of 2023, despite interest rates reaching their highest levels recorded in decades. According to Kamco Invest research, which analyzed the financial statements announced by 58 banks listed on the Gulf stock exchanges, total loans provided by banks reached a new record level of $1.9 trillion by the end of the second quarter, bringing the growth rate on a quarterly basis to 1.9%. Or the equivalent of $36.3 billion. Customer deposits rose 1% on a quarterly basis, to reach $2.3 trillion, despite a drop in customer deposits in Qatar and Kuwait. UAE banks achieved the highest profitability in the second quarter, with a total of $5.3 billion, compared to $4.6 billion for Saudi banks, $1.8 billion for Qatar banks, and $1.4 billion for Kuwaiti banks. The total revenues of Gulf banks once again recorded a quarterly growth of 1.3% to reach a new record of $29.2 billion. UAE banks recorded the largest increase by 3.1%, followed by Qatari banks by 1.3%, and Saudi banks by 0.2%.
Listed banks in the UAE showed the largest improvement in the net interest margin during the quarter, with an increase of 16 basis points to reach 3.44%. They also topped the highest return on shareholders’ equity at the end of the second quarter with 15.9%, followed by Saudi and Qatari banks with a return of 12.8% and 12.1%. respectively. We also saw the return on equity of listed banks in the UAE grow at a higher rate on a quarter-on-quarter basis of +110 basis points.
The total loans provided by banks listed in the cooperation countries reached a new record level of $1.9 trillion by the end of the second quarter, bringing the growth rate on a quarterly basis to 1.9%, or the equivalent of $36.3 billion, supported by the growth witnessed by the Gulf markets. Total net loans grew slightly less than 1.7% during the quarter, to $1.8 trillion. In terms of liquidity, customer deposits increased at a lower rate of 1.0% on a quarterly basis, to reach $2.3 trillion, after the decrease in customer deposits in Qatar and Kuwait was offset by an increase in deposits in the rest of the markets. The net result of the acceleration in the pace of growth in total loans against deposits was that The loan-to-deposit ratio grew marginally to 79.0% at the end of the second quarter.
The rise in interest rates contributed to the improvement in net interest income for listed banks in the region, as net income reached $13.7 billion, a growth of 3.5% on a quarterly basis, supported by an increase in net interest and non-interest income during this quarter. A decrease in provisions for loan losses, from $3 billion to $2.7 billion, also boosted the bottom line.
Manage liquidity risk well
Customer deposits in GCC banks grew at a slower pace compared to the past few quarters, which led to a marginal and gradual growth in the loan-to-deposit ratio. Since the basic customer deposits form the backbone of financing these banks, recent reports indicated the liquidity problems they face. However, all central banks confirmed, recently, the availability of sufficient liquidity in the banking sector, and their continuous support for this sector. A report issued by Standard & Poor’s also indicated the strong and stable financing position that characterizes the region’s banks in the form of customer deposits, in addition to relying on external financing in the event of liquidity pressures. Recently, the Governor of the Saudi Arabian Monetary Agency highlighted the strong liquidity and capitalization of banks, and stressed that lending risks remained moderate, and that all prudential hedge ratios for the banking sector exceeded regulatory requirements, as per Basel Committee standards.
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Lending flexibility and high interest
Credit growth in the Gulf remained strong during the second quarter, despite higher interest rates, indicating strong economic activity and growing business confidence in the region. The manufacturing sector activity data issued by Bloomberg (Marquette Comprehensive Economic Survey) showed that the PMI data remained strong during the quarter, above the 50-point growth barrier in Dubai, Qatar, Saudi Arabia and the UAE. Manufacturing activity in Saudi Arabia remained strong, with a PMI reading of 59.6 points in June 2023, and it remained high in July, at a slightly lower level of 57.7 points. The UAE and Qatar also posted strong PMI numbers of 56.9 and 53.8 in June.
The data issued by the Gulf central banks revealed the growth of lending activities in the region during the second quarter, despite the slowdown in the growth rate in many markets during it, and the existing credit facilities in Saudi Arabia recorded the strongest growth rates, by 2.5%, while the growth rates were in Kuwait. Qatar, Bahrain and Oman account for less than 1%. Contributing to enhancing the growth of Saudi lending activity, the improvement of the public utilities, real estate and trade sectors, which witnessed a growth of more than 5% on a quarterly basis, and personal credit facilities increased by 2.2%, compared to a decrease in the financing sub-category, which negatively affected the overall growth.
As for the UAE, although data for this quarter was not available at the time of writing this report, the quarterly survey of credit confidence conducted by the Central Bank of the UAE indicated that banks are willing to lend, given the positive economic outlook and the improvement in asset quality. On the sectoral level, loans to the retail and wholesale trade sector grew, followed by the manufacturing and real estate development sectors. In addition, the positive outlook for the real estate market, higher customer sales, and increased investment in fixed assets led to higher demand for credit, offsetting the negative impact of higher interest rates. In Kuwait, the marginal growth was at S
