GCC Banks’ Profits Soar in Q1 of 2023

Aggregate net profit for listed banks in the GCC reached a new record high during Q1 this year, mainly led by a steep Q-o-Q increase in non-interest income that more than offset a sequential decline in interest income in Qatar and Kuwait.

In its report entitled “GCC Banking Sector Report – Q1-2023,” the Kuwait-based investment firm Kamco Invest said that lower provisions booked by banks in the region also supported bottom-line performance during the quarter, according to Kamco, a financial powerhouse in Kuwait.

As a result, aggregate net profits saw the biggest Q-o-Q growth since the pandemic at 17% to reach $13.4 billion during the above said period, from $11.5 billion recorded in Q4-2022. The sequential increase in net profit was broad-based and was seen across the GCC.

The total quarterly net interest income declined for the first time in five quarters during the first three months of this year mainly led by a decline reported by banks in Qatar and Kuwait.

On the other hand, banks in UAE reported a growth of 1.2% whereas for Saudi-listed banks the growth was flattish. Non-interest income, meanwhile, increased by a strong 17.2% during the quarter with growth seen across the GCC, barring in Bahrain. Kuwait, Saudi and Qatari banks reported strong double-digit growth in non-interest income during the quarter, the report said.

The trend in provisions was mixed during the quarter, although aggregate provisions declined by 6.2% Q-o-Q to reach $3.1 billion during this period compared with $3.3 billion in Q4 of 2022. The decline mainly came because of a steep drop in provisions booked by banks in the UAE, Qatar, and Oman that more than offset higher provisions booked by banks in Kuwait, Saudi Arabia, and Bahrain.

Growth in Aggregate Lending

Aggregate lending in the GCC continued to see growth during the quarter although the trend remained mixed at the country level with growth in three out of six countries in the GCC offsetting declines in the remaining countries.

Moreover, the Q-o-Q growth in gross loans fell to a five-quarter low level of 1.2% to reach $1.9 trillion in the first three months of 2023.

The growth in net loans was slightly better at 1.7% to reach $1.8 trillion while the growth in customer deposit was at a three-quarter high of 2.9% to reach $2.3 trillion at the end of Q1 of 2023. The trend once again remained mixed across the GCC countries.

The net impact of a stronger growth in customer deposits vs. lending resulted in a decline in loan-to-deposit ratio for the GCC banking sector that reached 78.5%, one of the lowest levels in several quarters.

Net Interest Income

The aggregate net interest income witnessed its first decline in five quarters to reach $20 billion during Q1 of 2023 from $20.2 billion in Q4 of 2022. The Q-o-Q decline was mainly led by fall in net interest income in Qatar and Kuwait that more than offset strong growth in Bahrain coupled with marginal growth in net interest income reported by banks in Oman, the UAE and Saudi Arabia. Moreover, cost of funds for the aggregate GCC banking sector saw a sharp increase from 1.9% in the previous quarter to reach a multi-quarter high of 2.5% during Q1-2023.

On the growth side, net interest income reported by Saudi-listed banks increased marginally by 0.1% Q-o-Q to $6.8 billion after growth in net interest come for six out of 10 banks was offset by declines reported by the remaining four that include Al Rajhi Bank, Bank Aljazira, Banque Saudi Fransi and SNB.

The aggregate for the UAE banking sector showed net interest income growth of 1.2% after higher interest income in most banks in the Emirates was partially offset mainly by a steep Q-o-Q drop in net interest income reported by Emirates NBD due to the exposure to DenizBank, the report said.