DOHA: The top 10 GCC banks are among the fastest growing globally, led by QNB Group. They are likely to remain well insulated from the current turmoil in emerging markets (EM) as their growth momentum is underpinned by strong economic fundamentals in the region: high revenue from hydrocarbon exports; positive net foreign asset positions; strong support for the banking system; and large government spending on infrastructure, QNB Group analysis noted yesterday.
QNB Group, the largest GCC bank by assets, is the only Qatari bank in the top 10 list and was the fastest growing bank with total assets expanding by 30 percent in the 12 months to end-June 2013. The asset growth was driven by the strategic acquisition of NSGB in Egypt, and higher international stakes. At the end of 2012, 79 percent of QNB’s assets were in Qatar.
Growth is expected to accelerate as the government rolls out its large infrastructure investment programme in time to meet requirements for the 2022 World Cup. With a strong net foreign asset position (high and rising international reserves and a large sovereign wealth fund) and high hydrocarbon revenue, Qatar is well insulated from capital flight risks faced by other emerging markets. This will enable it to comfortably roll out its infrastructure development plan, supporting the economy and the banking sector.
Qatar’s economic growth and project pipeline presents major opportunities for QNB and the wider banking sector to boost growth of domestic credit and investment as well as profits.
Profits of Qatari banks are rising along with assets; reaching $2.4bn in the first half of 2013, nine percent higher than the same period in 2012. This equates to high returns of 2.4 percent on average assets and 15.2 percent on average equity. This is being achieved while asset quality remains high across the banking sector: NPLs were as low as 1.7 percent of total loans at end-2012.
They have been kept down by strong government support: the government stepped in to purchase bad real estate loans and equity portfolios from banks in the aftermath of the 2008-09 financial crisis. Additionally, banks are well capitalized with Tier 1 capital at 18 percent of risk weighted assets at end-2012.
A total of 4 of the banks in the GCC top ten are from Saudi Arabia. Assets at these banks have grown 10 percent in the 12 months to end-June 2013. This was driven by both corporate and retail loan growth.
On the corporate side, high oil production and prices has boosted revenue, supporting government spending on major infrastructure projects. More recently, $22bn of contracts were awarded in July for the Riyadh Metro.
Such projects have provided banks with considerable financing opportunities, driving asset growth. Retail loan growth has been propelled by the new and fast-growing mortgage loan sector.
The growth in assets of GCC banks remains strong, notwithstanding the current EM crisis. Overall, assets of the top 10 GCC banks grew by 16 percent in twelve months to end–June 2013 to reach $743bn. The growth was driven by strong oil prices and high non-oil economic activity. At the same time, large-scale government spending on major projects across the region, particularly in Qatar and Saudi Arabia, created significant banking opportunities.
According to QNB, the leading GCC banks are likely to continue their strong performance in 2013 and beyond.
Furthermore, the largest GCC banks comfortably meet capital requirements (the average Tier 1 Capital ratio amongst the top ten GCC banks is 16 percent); have strong asset quality (the average ratio of non-performing loans (NPLs) to total loans is 1.9 percent excluding Emirates NBD, which has NPLs of 14 percent); and robust profit growth (average profit growth was 16 percent in the year to end-June 2013). According to QNB Group, this adds further comfort to the view that the top GCC banks are well insulated against the EM turmoil that is currently captivating global financial markets.