Shareholders of the GCC banks have received significantly less cash dividends for the financial year 2020 as the banks in the region were either virtually barred from paying dividends due to the regulatory relaxations for COVID-19 or made a much smaller dividend payments.
The GCC banks, according to a recently released report, slashed total cash dividends by 45.4 per cent to US$8bn for the financial year 2020 from US$14.6bn dividend payouts recorded in the previous year.
‘The impact of COVID-19 was apparent on the GCC banking sector that recorded record high provisions during the fourth quarter of 2020. As an ongoing effect of the pandemic, banks slashed cash dividend payments by almost half for the year 2020. This was also the second consecutive year of dividend cuts, one of the first since the financial crisis, after 2019 dividends were cut by US$3.9bn,’ Kuwait-based Kamco Investment said in its GCC banking sector report.
The cuts in dividend payouts, it added, also came as a result of restrictions from regulators in exchange for relaxations on the capital front.
The decline in cash dividend payments was seen across the board in the GCC with banks in all the countries slashing dividends.
Bahraini banks made the biggest percentage cuts to dividends at 72.4 per cent. Saudi Arabian banks were next slashing cash dividends by 64.1 per cent to US$1.3bn as payments for 2020, while UAE-listed banks slashed dividends by 36.4 per cent to US$3.3bn, the highest absolute payments in the GCC during the year.
On the other hand, Qatari and Omani banks witnessed the smallest declines in dividend payments for the year 2020.
After a tough year 2020, the GCC banking sector’s net profits witnessed remarkable recovery during the first quarter of 2021 backed by growth seen across the region. Total profits reached US$8.4bn for the first quarter of this year, up 62 per cent year-on-year and 14.2 per cent on quarter-on-quarter basis, according to Kamco Investment.
Out of 59 banks in the region, merely six reported a quarter-on-quarter decline in profits during the first quarter of 2021 while 17 banks reported year-on-year decline.
The improvement in profits was mainly led by a 41 per cent or US$2.5bn quarter-on-quarter drop in loan-loss provisions that reached a six-quarter low level of US$3.6bn in the first quarter of 2021.
On the business side, lending growth continued for the fourth consecutive quarter in January – March period. Aggregate net loans of the GCC banks grew by 1.8 per cent quarter-on-quarter to reach US$1.52tn, Kamco Investment said.
Meanwhile, customer deposits at the GCC banks showed growth across the board reaching US$1.89tn at the end of first quarter with a quarter-on-quarter growth of 2.3 per cent.
Total banking sector assets in the GCC region continued to climb for the fourth consecutive quarter reaching a new record high of US$2.51tn as of March 31, 2021.
‘Growth in assets was seen across the board with Omani banks reporting the biggest quarter-on-quarter percentage increase in total assets at 3.2 per cent, although the sultanate remains the smallest banking industry in terms of listed banks’ total assets of US$81bn at the end of the first quarter of 2021,’ Kamco Investment noted in its report.
The UAE banks continued to account for the biggest share of regional banking balance-sheet with total assets of US$818bn followed by Saudi Arabia at US$673bn.
Meanwhile, the stability in oil prices at over US$65 per barrel level has somewhat alleviated concerns related to government revenues and estimates now point to a much lower funding requirements, Kamco Investment said.
‘That said, governments’ spending plans remains intact and as a result break-even oil prices are above the current oil price for all the GCC countries, barring Qatar, according to the IMF.’
‘Sovereigns are also looking for private participation in the economic activity as seen from a number of PPP projects awarded recently. This, according to us, would augurs well for GCC banks, especially given the unutilised lending capacity with one of the lowest loan-to-deposit ratio of 80.2 per cent,’ Kamco Investment added.
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