Aggregate third-quarter profits of the GCC banking sector declined 6.8 per cent year-on-year (YoY) but witnessed an increase of 2.9 per cent quarter-on-quarter, according to a new report by Global Investment House (Global).
With a 43 per cent growth in quarter-on-quarter (QoQ) profits, UAE banks were the second-best performers in GCC, following Kuwaiti banks, whose profits grew 48 per cent QoQ, according to a Global study of 30 of the largest banks in the GCC.
Unlike the second quarter of 2010, aggregate provisions showed improvement in the third quarter, Global said. Due to that, the net profit showed a slight growth although the top line was flattened, it added.
UAE banks reported 17.1 per cent lower provisions in the third quarter of 2010, compared with the second quarter, Global said. However, on a year-on-year basis, provisioning for bad loans is up 42.1 per cent at the eight UAE banks that Global analysed as part of the overall GCC banking sector study, which examined 30 banks across the six GCC countries.
“Recoveries of the loan loss provisions are the main reason behind the improvement of the net provisions,” Faisal Hasan, Global’s Head of Research, wrote in the report. “KSA contributed 39 per cent to the total provisions of our banking universe which was the only country witnessing an increase in 3Q10. KSA banks’ provisioning escalated by around 33.9 per cent YoY and 31.6 per cent QoQ. The banks have attributed the increase in provisions to their continued conservative policy.”
Compared to a year-earlier, however, banks in the UAE and Saudi Arabia exhibited poor bottom-line performance, with profitability down 9.6 and 9.7 per cent YoY, respectively. “Being heavyweights in our GCC banking profitability universe, banks in these two countries led the slide in overall profitability of the GCC aggregate for the first nine months of2010,” Hasan added.
“While banks in the remaining countries showed better performance, the Qatari banking sector earned the spotlight with a stellar growth of 15 per cent YoY,” the report said.
Qatar on the other hand witnessed the best provision performance in GCC banking sector, representing a 21 per cent YoY and 29 per cent QoQ decline in its provisions. Qatari banks provisions declined with the only exception of QNB’s provisions, which increased by 39 per cent YoY and 26 per cent QoQ.
Analysts at Global further added in the report that with the bulk of provisioning for bad loans taken care of, going forward, they expect the GCC banking sector to see better bottom line performance. “We believe that most of the GCC banks have adequately provided for their loans portfolio; this will eliminate the element of surprise,” the report noted.
“GCC banks will once again concentrate on their top line growth, taking advantage of the economies reviving. We are 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 the GCC. On the other hand, Saudi banks provisions are expected to exhaust their performance as it did not pass the bottleneck of the provisioning cycle like its neighbouring countries,” the report said.