Qatar listed banks record strongest NII growth in GCC

The GCC banking sector recorded one of the biggest growths in total assets during the second quarter of 2019 (Q2-19) that reached $2.23trillion. The sequential growth in assets during Q2-19 stood at 2 percent while the y-o-y growth was 6.4 percent, one of the highest over the pasts few quarters.

The growth came primarily on the back of conventional banks that grew assets at 2.3 percent q-o-q while Islamic banks increased their balance sheet by 1.3 percent. The growth in earning assets was slightly lower at 1.3 percent to reach $1.86trillion indicating a relatively higher growth in non-earning assets. The q-o-q growth in net loans stood at 0.9 percent in Q2-19 and reached $1.36trillion after increasing at the more than double the pace during the previous quarter.

KAMCO Research noted revenue for listed GCC banks reached $20.3bn in Q2-19 primarily on the back of higher net interest income (NII) while non-interest income remained almost flat at $6bn. Net interest income growth was strongest in Qatar which recorded a q-o-q growth of 2.8 percent whereas most other countries recorded marginal growth. In Qatar, four out of the eight banks recorded a decline in net interest income during the quarter, however, QNB’s 4.3 percent q-o-q growth further supported by 9.7 percent growth reported by Commercial Bank, more than offset the decline in aggregate net interest income during the quarter.

Across the region, net interest income of the banks saw a marginal growth of 0.6 percent q-o-q to reach $14.3bn during Q2-19 after witnessing marginal decline during Q1-19. On the other hand, non-interest income remained flat at $6.0bn q-o-q resulting in a total bank revenue of $20.3bn during Q2-19, a q-o-q growth of 0.5 percent. The relatively higher growth in earning assets as compared to net interest income resulted in a marginal decline in net interest margin (NIM) from 3.16 percent in Q1-19 to 3.13 percent in Q2-19.

In terms of operating expenses, cost optimization efforts by regional banks resulted in improved cost-to income ratio that reached 37.1 percent, one of the lowest levels recorded for GCC banks. Nevertheless, an increase in provisions during the quarter resulted in a 5.1 percent q-o-q decline in net income, while y-o-y growth stood at a marginal 1.2 percent during Q2-19. The increase in provisions was primarily as a result of higher impairment charge reported by Saudi Arabian banks.

On the other hand, the growth in customer deposits of GCC banks was recorded at 2.3 percent q-o-q, the highest growth over the past eight quarters. As a result, the loan-to-deposit ratio reached 80.4 percent, one of the lowest over the last nine quarters and continued to remain well below international standards. According to KAMCO analysts, the lower ratio shows underutilisation of funds but at the same time indicates the extra capacity of GCC banks to fund future projects in the region and support the growth in private sector, especially the non-oil sector.

Source from: The Peninsula