Muscat – Total net profits for the GCC banking sector increased by 40 per cent to reach US$35bn in 2021 as compared to US$25bn in 2020, recording one of the highest yearly profitability levels.

The growth in the GCC banks’ profits during 2021 was led by an increase in total bank revenues as well as a decline in loan loss provisions, Kuwait-based Kamco Investment said in a research report.
However, GCC banks’ profits remained below pre-pandemic profits of US$37bn reported in 2019, the report showed.

The year-on-year increase in 2021 was broad-based across the GCC with profits for Kuwaiti banks almost doubled to US$2.9bn. Saudi and UAE-listed banks also reported healthy profit growth of 40.2 per cent and 52.6 per cent during the year.

Higher profits also pushed the aggregate return-on-equity for the sector to a seven-quarter high level of 10.4 per cent at the end of 2021 as compared to 9.6 per cent in the third quarter of 2021 and 8.1 per cent at the end of 2020.

‘The growth in profits during the year was led by an increase in total bank revenue as well as a decline in loan loss provisions. Total bank revenue increased by 6.9 per cent to US$90bn in 2021, one of the highest on record and mainly led by 17.6 per cent growth in non-interest income,’ Kamco Investment said.

Revenue growth, the report said, was broad-based across the GCC with Qatari banks reporting the biggest growth of 9.9 per cent followed by UAE and Kuwaiti banks revenue growth of 9 per cent and 7.1 per cent, respectively.

The UAE-listed banks reported the biggest growth in non-interest income at 31.7 per cent but was the only market to report a drop in interest income during the year by 3.2 per cent.

Loan loss provisions reported by GCC banks declined by more than a quarter in 2021 to reach US$14.9bn from US$20.4bn in 2020.

However, loan loss provisions remained elevated as compared to pre-pandemic levels with an average loan loss provisions of US$9.1bn for the ten years preceding the pandemic (2010-2019), according to Kamco Investment’s report.

‘The decline in loan loss provisions during 2021 was seen across the GCC barring Qatar, which reported an increase of 20.1 per cent to report provisions of US$3.4bn, the second-biggest provision booked during the year after UAE-listed banks,’ the report noted.

In terms of quarterly trend, growth in lending decelerated during the fourth quarter of 2021 to a three-quarter-low gross loan growth of 1.2 per cent to reach US$1.7tn.

The subdued growth came after strong lending growth recorded by banks in Kuwait (3.7 per cent) and Saudi Arabia (2.8 per cent) were partially offset by below one per cent growth in UAE, Bahrain and Oman and a decline of 0.6 per cent reported by Qatari banks during the fourth quarter.

GCC banks’ customer deposits also showed a similar trend during the fourth quarter of 2021 with a growth of 1.2 per cent, also a three-quarter low, to reach US$2tn.

As a result, the loan-to-deposit ratio for the aggregate GCC banking sector declined marginally by 10 basis points to reach a five-quarter low level of 79.9 per cent.