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28 March 2024

GCC bank profits to start improving

Global Investment House analysts see growth in credit volumes in the range of 8–12 per cent during 2011 (FILE)

Published
By Waheed Abbas

GCC banks’ profitability is expected to start improving in 2011 since provisioning requirements are likely to ease off considerably, said a study released on Thursday.

"However, we believe that the spreads will remain under pressure and growth in credit volumes is seen to be in the 8–12 per cent range. We are still very positive on Qatari banks where we anticipate a sustainable growth of profitability supported by the credit demand and low risk profile compared to other banks in GCC," Kuwait-based Global Investment House analysts said in the report.

Aggregated profit of the GCC banking sector witnessed a decline of seven per cent QoQ. UAE and Kuwait were the worst performers in fourth quarter exhibiting a decline of 24 per cent QoQ and 11 per cent QoQ respectively. Other banks in the remaining countries showed a minor decline in their bottom line. Saudi Arabia witnessed best bottom-line performance in fourth-quarter with a five per cent QoQ rise in profit.

However, the annual performance for the aggregate profitability of GCC banks has shown a 10 per cent improvement. This improvement was led by Kuwaiti banks which saw a 30 per cent YoY rise. This was mainly due to CBK and Burgan.

The aggregate provisions, according to analysts, continued to slow down during the Q4 2010 and the full year. It decreased by seven per cent quarter-on-quarter and nine per cent year-on-year.

Decline in provisions can be termed as the main reason behind an annual growth of 10 per cent in aggregate net profits of 2010.

Saudi banks witnessed a minor increase in provisioning of three per cent QoQ and four per cent YoY. On the other hand, UAE banks’ provisions remained stagnant through 2010 though it showed a decrease of 17 per cent in fourth quarter of 2010. This was mainly due to high provisioning taken by Emirates NBD during the third quarter of last year, the analysts said.

The aggregate net interest income of the GCC banks remained stagnant in fourth quarter of 2010 and throughout the full year. Figures reveal that net interest income (NII) in Q4 dropped by 0.2 per cent QoQ and remained still year-on-year.

The NII of Qatari banks witnessed the largest increase in the region, amounting to 31 per cent for both QoQ and YoY. This was followed by Kuwaiti banks growing at 10 per cent QoQ but it remained flat YoY. NII decreased in all the remaining countries attributed to a major slowdown in loans growth which seemed to be a story similar for all banks in the GCC countries.

However, that was not the story of Qatari banks, where loans have grown by four per cent QoQ and 17 per cent YoY contributing significantly to the top line.