RIYADH: Banks in the Gulf Cooperation Council region are set to see a limited impact from the banking crisis hitting the US and Europe, according to a report from Kamco Invest.
The investment banking subsidiary of Kuwait Projects Company argues that financial institutions in the GCC had limited exposure to Silicon Valley Bank – the US firm that collapsed in March prompting concerns of contagion sweeping across the world in the manner of the 2008 global crash.
The report says balance sheets of the banks in the region remain strong, and in the final quarter of 2022 both aggregate lending and customer deposits remained strong.
“The broader GCC banking sector is expected to see only a limited indirect impact from the ongoing banking sector crisis in the US and Europe,” said the report, adding: “Shares of banks globally and in the region, especially, were affected due to fears of a contagion as the collapse of SVB was the biggest lender failure since the global financial crisis of 2008.
“However, the collapse had only marginal impact with minimal exposure of banks only in the UAE, while most of the other countries in the GCC remained unaffected.
“The bulk of the exposure was from various startups and VCs that had accounts with SVB that may now bank with local banks, although under increased scrutiny.”
The report also shows that rising interest rates in the US and its almost full replication by most GCC central banks during 2022 resulted in higher aggregate net interest margin for the region’s banking sector.
NIM for GCC banks averaged at a multi-year high of over 3 percent during the fourth quarter of 2022, despite partially reflecting the higher interest rates as bulk of the rate hikes were made during the second half of the year.
Saudi Arabia’s banks reported the highest average margin of 3.2 percent during the quarter followed by UAE and Qatari banks with margins also above the 3 percent mark after several quarters.
Aggregate lending in the GCC remained strong during the final quarter of 2022, with central bank data showing Qatari banks experienced the strongest lending growth during, while Bahrain and the UAE banks showed a slight decline.
Customer deposits bounced back to a stronger growth over the same period, with a quarter-on-quarter increase of 2.5 percent to reach $2.2 trillion