Banking profits in the Gulf Cooperation Council (GCC) rose by 18 percent YoY and 38 percent QoQ mainly on account of lower provisioning expense and improved cost efficiency, according to a report by Global Investment House (Global) on the GCC banking sector quarterly (1Q12).
The aggregate quarterly profit is the highest recorded in the past 5 years, the report said.
According to the report, all countries recorded significant jump in profits in terms of both YoY and QoQ with the exception of UAE.
Although on a QoQ basis, aggregate UAE banks profit was up by 50 percent, on a YoY basis, aggregate profit is down by 8 percent.
Qatar once again exhibited the strongest QoQ as well as YoY growth in profits with a growth of 58 percent and 68 percent respectively.
Net interest
income down
On an aggregate basis, GCC banks witnessed a healthy operating performance with net interest income (NII) rising by 11 percentYoY and non-interest income increasing by 4 percent YoY.
However, on a QoQ basis, NII was down by 4 percent despite a 3 percent growth in lending.
All countries witnessed margin pressures with Kuwait and UAE leading the way where NIMs were down by 53bps and 44bps respectively as compared to the previous quarter.
With lending not so strong in Kuwait (up 2.1 percent QoQ), the country recorded the highest decline in NII with a 10 percent QoQ fall while UAE with a 7 percent decline was not too far behind.
Saudi Arabia was the only country to record a gain in NII on account of a 5.2 percent QoQ increase in loan book witnessed in 1Q12 while Qatar exhibited a marginal 1 percent decline in NII despite a 3 percent increase in loan book.
Balance sheet growth strong
Balance sheet growth was strong (up 4.3 percent QoQ) driven by a 6.2 percent jump in deposit base.
However, aggregate lending was mediocre and increased by 2.8 percent during the quarter.
Balance sheet growth was strongest in the case of UAE, with its total assets increasing by 5.3 percent QoQ.
However, this increase is mainly due to one off growth in the case of NBAD where total assets jumped 13 percent and is attributed to government deposits, which are not as sticky as those from other sources.
Adjusting for the NBAD figure, total assets were up by 2.4 percent.
Lending in the Kingdom and Qatar once again was strongest among GCC countries. Bank lending in the region has continued to pick up in recent months, although country-specific factors still play an important differentiating role.
After witnessing substantial build up in provisioning in 4Q11, GCC banks saw their provisions expense came down by 46 percentQoQ and 5 percent YoY for the quarter under review.
While on a QoQ basis, the expense has come down for all countries, on a YoY basis, UAE and Kuwait witnessed reduced provisioning expense down by 14 percent and 15 percent respectively.
In UAE, all banks under coverage saw a decline in provisioning expense with the exception of UNB, which saw its provisioning expense go up by 67 percent with annualized net cost of risk standing at 81bps in 1Q12 against 50bps in 1Q11.
The story was same for Kuwait with NBK being the only exception where provisioning expense shot up by 21 percent and cost of risk (annualized) stood at 39bps at the end of 1Q12.
On the other hand, Saudi Arabia and Qatar witnessed an increase in their provisioning expense on a YoY basis, albeit on a low base. Despite the increase, both countries cost of risk is lowest among GCC.
Positive results
On an aggregate basis, the banking sectors (banks under coverage) of all individual countries offered a positive surprise except Qatar in 1Q12.
Qatar’s aggregate results were slightly off-mark (2.5 percent lower than anticipated), while that of the remaining on an aggregate level varied positively.
Within Kuwait, NBK was the only bank where results were in line, all other were above forecast.
In the UAE, FGB was the only exception, whereby it performed lower than our forecast.
Within the Kingdom, the results of Al-Rajhi, Samba and SHB were in line with our forecast, the report said.
Major deviation in the UAE came from ADCB, where the net profit was 27 percent above out forecast due to lower than expected provision.
In Kuwait, Burgan stood out for similar reasons albeit on a low base.
Within Qatar, Doha’s results varied most in percentage terms (+21 percent) from our expectations due to a substantial increase in investment income while in the Kingdom, SABB was the outlier on account of better than anticipated investment income.
GCC banks’ quarterly profits highest recorded in past 5 years
