GCC Banking Sector Achieves Record-High Profits in Q1 2023, Driven by Non-Interest Income Growth

The GCC banking sector has experienced a remarkable performance in the first quarter of this year, with listed banks achieving a new record high in aggregate net profit. This growth can be attributed to a significant increase in non-interest income, which more than offset a decline in interest income in Qatar and Kuwait. The findings were reported in a comprehensive analysis titled “GCC Banking Sector Report – Q1-2023” by Kamco Invest, a prominent Kuwait-based investment firm.

According to Kamco, the positive bottom-line performance was further bolstered by lower provisions made by banks across the region. As a result, the aggregate net profit witnessed its most substantial quarterly growth since the pandemic, surging by 17% to reach a staggering $13.4 billion in the first quarter of this year, compared to $11.5 billion in the previous quarter. This surge in net profit was evident throughout the GCC, showcasing a broad-based growth trend.

The report revealed that the total quarterly net interest income experienced a decline for the first time in five quarters, primarily due to decreases reported by banks in Qatar and Kuwait. Conversely, banks in the UAE demonstrated a modest growth of 1.2%, while Saudi-listed banks reported relatively flat growth. Notably, Kuwait, Saudi Arabia, and Qatar exhibited strong double-digit growth in non-interest income during this period.

Despite the mixed trends at the country level, aggregate lending in the GCC continued to grow during the quarter. The growth varied across the region, with three out of six countries in the GCC witnessing growth while the remaining countries experienced declines. Gross loans saw a Q-o-Q growth of 1.2%, reaching $1.9 trillion in the first three months of 2023. Meanwhile, net loans exhibited slightly better growth at 1.7%, totaling $1.8 trillion. Customer deposits also experienced a significant increase, reaching a three-quarter high of 2.9% growth, amounting to $2.3 trillion by the end of Q1 2023. Again, the trends remained mixed across the GCC countries.

The growth in customer deposits outpacing lending resulted in a decline in the loan-to-deposit ratio for the GCC banking sector. The ratio reached 78.5%, marking one of the lowest levels observed in several quarters. This suggests that banks in the region are relying more on customer deposits rather than loans to fund their operations and activities.

On the positive side, net interest income reported by Saudi-listed banks increased marginally by 0.1% Q-o-Q, amounting to $6.8 billion. The growth was driven by net interest income increases in six out of ten banks, partially offset by declines reported by Al Rajhi Bank, Bank Aljazira, Banque Saudi Fransi, and SNB. Similarly, the aggregate net interest income for the UAE banking sector showed growth of 1.2%, primarily fueled by higher interest income in most banks in the Emirates. However, this growth was partially offset by a significant Q-o-Q drop in net interest income reported by Emirates NBD, which can be attributed to its exposure to DenizBank.

In conclusion, the GCC banking sector has displayed a robust performance in the first quarter of 2023, achieving record-high aggregate net profits. This growth was driven by a substantial increase in non-interest income, which offset the decline in interest income in Qatar and Kuwait. Lower provisions made by banks in the region further supported the sector’s bottom-line performance during this period. However, the trend in provisions was mixed, and aggregate provisions saw a decline. The lending landscape varied across the GCC countries, with growth in some countries and declines in others. The decline in the loan-to-deposit ratio indicates a greater reliance on customer deposits by banks. Despite the decline in net interest income, Saudi-listed banks and the UAE banking sector managed to maintain modest growth in this area. The overall performance of the GCC banking sector in Q1 2023 suggests resilience and adaptability in the face of evolving market conditions.