Net interest income, lower provisions boost GCC banks' profits
Net earnings of GCC banks increased 8.8 per cent year-on-year (yoy) to $5.8 billion (Dh21.286 billion) in Q2 2015, mostly due to higher net interest income and a drop in provisions.
Net profit of banks in the Kuwait increased the most (15.1 per cent YoY), followed by UAE (13.1 per cent YoY), Qatar (10.7 per cent YoY); profit growth of KSA based banks remained muted at 3.7 per cent YoY.
However, on quarter-on-quarter (qoq) basis, net profit of the GCC aggregate rose 3.1 per cent , with Qatar leading the gain (8.7 per cent QoQ), followed by KSA (6.5 per cent QoQ). Sequential profit growth of UAE banks remained muted (0.4 per cent QoQ) but that of Kuwait witnessed a 13.5 per cent drop on account of one-offs that NBK saw in Q1 2015. QoQ growth in profit can be ascribed to higher operating income and lower operational expenditures.
Among UAE based banks, Emirates NBD reported 25.9 per cent YoY growth in net profit due to lower provision expenses and higher net interest income. The bank’s fee income growth was stable during the quarter, which added to the bottom-line.
Abu Dhabi Commercial Bank reported 21.4 per cent YoY growth in its bottom-line during Q2 2015 mainly due to a huge decline in provision expenses. The bank recorded a massive drop in its provisions due to improvement in asset quality.
Union National Bank reported 10.2 per cent YoY growth in its bottom-line in 2Q15 due to a significant increase in net and non-interest income. However, higher provisions partially dented the bottom-line growth.
Total assets of GCC banks expanded 9.8 per cent YoY to $1.2trn in Q2 2015.
Qatar-based banks witnessed the strongest growth in total assets (11.9 per cent YoY), followed by banks in UAE (11 per cent YoY), Kuwait (8.2 per cent YoY) and KSA (8.1 per cent YoY). Expansion in asset base was supported by growth in loan book. However, on a QoQ basis, asset growth was sluggish due to marginal increase in loans.
Stable growth in loans but margin declines
Loan book growth continues to remain strong across GCC markets.
The collective loans disbursed by GCC banks under the bank’s coverage increased by 10 per cent YoY to $768.7bn in Q2 2015 which was the main driver behind the net interest income which grew by 5.9 per cent YoY during the quarter.
However, margins remained under pressure on YoY basis due to a 16bps decline in the yield on assets, leading to 11bps shrinkage in net interest margins (NIM); as a 5bps YoY fall in cost of fund partially offset the fall in NIMs.
Loans growth of UAE banks picked up during the quarter and rose 11.8 per cent YoY due to higher infrastructure lending. With the Dubai Expo 2020 on the cards, infrastructure spending in UAE advanced gradually. Loan growth is expected to remain intact with more public spending till 2020. Amongst UAE banks, National Bank of Abu Dhabi recorded highest loan growth of 19.9 per cent YoY, followed by First Gulf Bank (16.1 per cent).
The net interest income of GCC banks increased 5.9 per cent YoY and 1.8 per cent QoQ. The net interest income (NII) of banks in Kuwait grew the most (12.1 per cent YoY), followed by UAE (6 per cent YoY), Qatar (5.4 per cent YoY) and KSA (3.6 per cent YoY).
Non-interest income growth was muted due to weak fee and lower investment income.
Non-interest income of GCC banks grew marginally at 1.7 per cent YoY during the quarter due to 1.4 per cent YoY decline in fee income and what seems like lower investment gains. Qatar (10.6 per cent YoY) recorded a strong growth in non-interest income, while KSA (2.1 per cent YoY), UAE (0.3 per cent YoY) reported nominal rise in non-interest income. Kuwait (-3.5 per cent YoY) witnessed a fall in non-interest income.
Fee income of our GCC coverage reduced 1.4 per cent YoY, due to 10.8 per cent YoY fall in the fee income of KSA banks. On the other hand, UAE (6.3 per cent YoY), Qatar (5 per cent YoY) and Kuwait (4.3 per cent YoY) reported increase in their fee income.
Amongst the UAE based banks, Union National Bank recorded a huge 34.6 per cent YoY rise in non-interest income due to higher fee income.
Operating expenses increased; provisions decline
During the quarter, the overall operating expenses grew 6.7 per cent YoY to $3.5bn, primarily driven by UAE (11.8 per cent YoY), followed by KSA (5.6 per cent YoY), Qatar (4.9 per cent YoY) and Kuwait (3 per cent YoY).
Amongst UAE based bank, operating expenses of National Bank of Abu Dhabi rose (16.2 per cent YoY), followed by Abu Dhabi Commercial Bank (15.6 per cent YoY), Union National Bank (12.1 per cent YoY), First Gulf Bank (11.5 per cent YoY).
Provisions decline, add to profit
Provision expenses declined 13.7 per cent YoY during Q2 2015. Provision expenses of all the countries declined, led by UAE (-31.1 per cent YoY), KSA (-9.2 per cent YoY), Qatar (-6.6 per cent YoY), Kuwait (-5.9 per cent YoY).
Amongst UAE based banks, Abu Dhabi Commercial Bank reported 64 per cent YoY fall in its Q2 2015 provisions, followed by First Gulf Bank (-34.2 per cent YoY), Emirates NBD (-33 per cent YoY) and National Bank of Abu Dhabi (-22.6 per cent YoY).