The impact of the coronavirus pandemic, that is being felt across sectors in the GCC has resulted in historic declines in corporate profits. The GCC banking sector is no exception as the sector reported its lowest quarterly profits since 2012.
The GCC banking sector’s total net profits in the second quarter of 2020 came at US$4.3bn (excluding Bahraini banks due to lack of quarterly data), a year-on-year decline of 53.2 per cent, according to a sector report released by Kuwaitbased Kamco Invest.
Profits during the second quarter were affected by falling revenues for the banking sector in addition to higher loan loss provisions as banks took COVID-19 related provisions. The sharp decline came mainly on the back of a quarterly loss of US$1.83bn reported by Saudi Arabia’s SABB during the second quarter this year on the back of the goodwill impairment charge it took during the quarter. Excluding SABB’s losses, profit for the GCC banking sector reached a six-quarter low of US$6.1bn, Kamco Invest said.
It said the loan loss provisions continued to rise during the second quarter to reach a new recent record of US$4.6bn for the GCC banking sector (excluding Bahraini banks), an increase of 10.3 per cent as compared to the previous quarter. The GCC banking sector has taken total provisions of US$9.1bn in the first two quarters of 2020 as compared to US$12.6bn provisions during the full year 2019, the report added.
However, GCC banks continued to show resilient asset growth during the first half of 2020. The total assets grew by 4.3 per cent to reach US$2.5tn as of the end of June 2020 as compared to US$2.4tn at the end of 2019.
Listed banks in Saudi Arabia once again reported the biggest increase in assets during the first half of 2020 with a growth of 7.7 per cent followed by the UAE at five per cent growth. The only exception was Omani banks as they reported an aggregate contraction in balance sheet size by 0.3 per cent in the first half of 2020 to reach US$77bn, according to Kamco Invest report.
Asset growth in the GCC banking sector was once again supported mainly by Islamic banks that grew assets at 7.2 per cent during the January–June period of 2020 as compared to 3.4 per cent for conventional banks.
As per the report, GCC banks showed continued growth in lending with both gross loans and net loans showing growth since the start of the year. Gross loans (excluding Kuwaiti banks) increased by 3.5 per cent during the first half of 2020 to US$1.38tn, while net loans (including Kuwaiti banks) also increased by 3.5 per cent to US$1.49tn as of June 30, 2020. Saudi Arabian banks reported the biggest increase in net loans at 7.2 per cent followed by Kuwaiti banks at 3.8 per cent growth in the first half of 2020.
Customer deposits also reported growth of 4.6 per cent during the first half of 2020 to reach US$1.87tn, resulting in an aggregate loan-to-deposit ratio of 79.7 per cent for the GCC banking sector
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