Thursday, 28 October 2021 04:50 GMT

GCC banks' loan growth expands as economy recovers

(MENAFN- The Peninsula) The Peninsula

Doha: Listed banks in the GCC continued to post robust growth in lending activity during the second quarter of 2021 resulting in record high loan books. Aggregate gross loans at the end of the quarter reached $1.68 trillion, up 4.6 percent quarter-on-quarter and 7.1 percent year-on-year, after a broad-based growth seen in all the markets, according to a report by Kamco Invest. 

Net loans also showed a similar growth of 4.8 percent q-o-q to reach $1.6 trillion, once again backed by growth in all the markets. Customer deposits also showed growth in almost all the markets during the quarter. Aggregate customer deposits increased by 4.6 percent to reach $2.0 trillion, a new record high for the GCC banking sector, compared to $1.9 trillion at the end of the first quarter of 2021. 

The aggregate loan-to-deposit ratio for the sector improved slightly q-o-q by 20 bps to 80.4 percent, the highest in the last five quarters, but still below pre-COVID-19 levels. Total banking sector assets in the GCC continued to show growth reaching a new record high of $2.64 trillion, registering a growth of 4.7 percent q-o-q and 6.7 percent y-o-y during Q2-2021. 

On the policy front, the economic resumption post the COVID-19 restrictions saw several targeted government support programs announced in the region with an aim to support vulnerable sectors as well as to provide benefits including employment support, startup ecosystem and sector specific assistance programs. Businesses are also keen on financing new projects with the ongoing low interest rates and the expectation that the rates would remain low till the end of 2022.

Consumer and mortgage loans drive lending growth in Q2-2021. The trends in Saudi Arabia and Qatar continued to remain strong, while it remained marginally positive in the UAE.

According to Qatar Central Bank, the aggregate q-o-q lending growth stood at 2.5 percent in Q2-2021, a decline from 4.1 percent q-o-q growth seen during Q1-2021. However, lending to all the domestic sectors reported growth during the quarter with total domestic lending up 4.1 percent that was partially offset by a decline of 17.7 percent in credit outside Qatar. Credit to Industry sector showed the strongest q-o-q growth of 24.1 percent, whereas lending to Consumption and Services increased b 8.9 percent and 4.1 percent q-o-q, respectively. 

GCC banking sector net profits remained stable during Q2-2021 after witnessing recovery during Q1-2021 to reach pre-COVID levels. Profits reached $8.3bn during the quarter, up 82.8 percent y-o-y and 0.3 percent sequentially. The y-o-y growth in profits was seen across the region after record low profits reported last year. 

Total operating expenses stood at $8.5bn during Q2-2021 as compared to $8.2bn in Q1-2021. Qatari banks reported the lowest ratio of 30.1 percent that further improved from 31.1 percent in Q1-2021. The relatively better performance of Qatari banks also reflected its relatively high loan-to-deposit ratio at 90.0 percent at the end of Q2-2021. 

Return on Equity (ROE) reaches 4-quarter high led by broad-based recovery. Aggregate ROE for the GCC banking sector continued to show improvement during Q2-2021 reaching a 4-quarter high level of 9.1 percent as compared to 8.1 percent at the end of Q1-2021. Total shareholder equity reached $339.6bn, after increasing by 8.9 percent from the previous quarter. 

At the country level, Qatari banks continued to boast the highest average ROE of 12.0 percent at the end of Q2-2021 as compared to 11.6 percent at the end of Q1-2021. Saudi Arabian banks were next with an average ROE of 11.0 percent, a significant improvement from 9.1 percent reported in Q1-2021. The rest of the market reported ROE in single digits with UAE banking sector at 7.3 percent followed by Oman and Kuwait at 6.4 percent and 6.1 percent, respectively. 

The trend in customer deposits was also broadly positive in the GCC with five out of six countries recording a q-o-q growth during Q2-2021. The aggregate customer deposits for the sector grew by 4.6 percent q-o-q and 6.1 percent y-o-y to reach $2.0 trillion in Q2-2021. Banks in Qatar reported the biggest y-o-y increase in customer deposits at 8.8 percent to reach $379bn, although the q-o-q growth remained stable at previous quarter's levels. 

Qatari banks also boasted the highest cover against stage 3 bad loans in the GCC during the quarter at 91.4 percent, slightly lower than Q1-2021 cover of 91.9 percent. Bahraini banks were next at 69.1 percent followed by Omani and Kuwaiti banks at 61.8 percent and 60.3 percent. 

The average share of bad loans (stage 3 loans) on GCC banks' loan books remained stable q-o-q at 4.2 percent. Qatari banks also reported the lowest bad loans on their books at 2.5 percent at the end of Q2-2021, a slight increase from 2.4 percent in Q1-2021.



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