Net profits of GCC banks top $11bn in second quarter

Muscat: GCC banking sector net profits reached another record level of $11.1 billion in the second quarter (Q2) of 2022 registering a quarter-on-quarter growth of 1.9 per cent and year-on-year growth of 31.9 per cent, according to a new report.

“The increase in aggregate profits was mainly led by higher revenues for the sector coupled with a slight drop in provisions during the quarter, the Kuwait-based Kamco Invest, an investment strategy and research firm, said in its GCC Banking Sector Report for August 2022.

The growth came after aggregates for all the countries in the Gulf Cooperation Council (GCC) reported an increase, barring Kuwaiti banks that reported a quarter-on-quarter (q-o-q) decline of 0.6 per cent mainly led by higher operating expenses.

Omani banks reported the biggest q-o-q percentage increase in net profits during the quarter at 13.9 per cent followed by Qatari and Bahraini banks with the growth of 3.6 per cent and 3.2 per cent respectively.

Growth in Saudi Arabian banks stood at 2.7 per cent while UAE banks showed flattish net profits during the quarter, the Kamco Invest report said.
In terms of year-on-year (y-o-y) growth, aggregates for almost all countries in the GCC showed strong double-digit growth during the second quarter (Q2) of 2022.

Oil price gains support deposit growth
The oil-price-led economic recovery in the GCC also resulted in higher deposits in local banks that increased by $83.7 billion to reach $2.2 trillion. The q-o-q growth was at a four-quarter high of 4.0 per cent during Q2-2022, while y-o-y growth was a solid 9.4 per cent.

Banks in Saudi Arabia and UAE recorded the biggest q-o-q growth in customer deposits during Q2-2022 at 6.1 per cent and 5.5 per cent, respectively, while the y-o-y growth stood at a strong 16.2 per cent and 8.4 per cent, respectively, the report said.

Higher deposits also reflected higher income-seeking depositors as interest rates offered by GCC banks increased after the central banks followed US Fed monetary tightening policy aimed at taming inflation. The vibrant economic activity was also reflected in data from GCC central banks’ monthly publications that showed growth in credit disbursements in Kuwait, Saudi Arabia, Qatar and Bahrain during Q2-2022. Data for UAE was not available at the time of writing this report while data for Oman for the two months of Q2-2022 showed a credit growth of 1.2 per cent.

Aggregate LLP drops
Loan loss provisions (LLP) once again witnessed a drop at the aggregate GCC level in Q2-2022, however, at the country level, the changes were mixed.
“Out of the 57 listed banks we analysed, 35 banks reported higher provisions during the quarter,” the Kamco Invest report said.

Topline improves
Total bank revenue for GCC banks registered a healthy q-o-q growth of 4.8 per cent during Q2-2022 to reach $24.9 billion as compared to $23.7 billion during Q1-2022.
“The q-o-q increase was led by a broad-based improvement in revenues across the GCC during the quarter,” the report further said.

The increase was mainly led by higher interest rates across the GCC after central banks in the region hiked policy rates following the rate hikes by the US Fed. As a result, net interest income increased by a strong 9.6 per cent to reach $17.1 billion. However, this increase was partially offset by a q-o-q drop in non-interest income that reached $7.7 billion in Q2-2022 registering a q-o-q decline of 4.5 per cent.

The drop in non-interest income reflected the quarterly decline in global and regional financial markets during the quarter that affected investment banks’ balance sheets, the report said.

Cost optimisation
Aggregate operating expenses reported by listed banks in the GCC increased by 8.8 per cent q-o-q during Q2-2022 to reach $9.6 billion. The increase also reflected a lower base as operating expenses had witnessed a steep q-o-q decline of 13.5 per cent during Q1-2022. Average quarterly expenses over the last four quarters stood at $9.4 billion against $8.4 billion from Q3-2020 to Q2-2021.

On the other hand, revenue growth remained robust following the gradual economic restoration following the pandemic, the report said.

This increase in revenues helped offset the overall impact of higher absolute costs on the cost-to-income ratio remained below the 40 per cent mark over the last five quarters and reached 39.5 per cent at the end of Q2-2022.

Loan-to-deposit ratio falls
Aggregate net loan growth during Q2-2022 stood at 1.9 per cent q-o-q for the GCC banking sector to reach $1.71 trillion mainly led by growth reported by Saudi and UAE-listed banks. The y-o-y growth compared to Q2-2021 was strong at 7.4 per cent, in line with the growth in gross loans that reached $1.79 trillion at the end of Q2-2022.