Friday 27 / December / 2024
Muscat: The GCC banking sector witnessed continued growth in lending during the second quarter of 2023 despite interest rates reaching decades-high levels following rate hikes in the US, according to a new report.
“Aggregate outstanding credit facilities in almost all the countries in the Gulf Cooperation Council (GCC) showed sequential growth during the quarter mainly led by a robust projects market pipeline as well as government efforts to reduce the impact of higher interest rates,” Kamco Invest said in its latest report titled 'GCC Banking Sector Report-Q2-2023 August-2023'.
“Moreover, several new big-ticket projects and reform initiatives were announced in the GCC giving a further boost to corporate lending,” the report further added.
Aggregate gross loans for GCC-listed banks reached a new record high of $1.9 trillion at the end of the second quarter of 2023. The quarter-on-quarter (q-o-q) growth stood at 1.9 percent or $36.3 billion backed by growth in all markets in the GCC. Similarly, aggregate net loans showed a slightly smaller growth of 1.7 percent during the quarter to reach $1.8 trillion.
“On the liquidity front, customer deposits increased at a smaller rate of one percent q-o-q to reach $2.3 trillion after a decline in customer deposits in Qatar and Kuwait was more than offset by higher deposits in the rest of the markets,” the Kamco Invest report said. The net impact of faster growth in gross loans against customer deposits was a slight growth in the aggregate loan-to-deposit ratio for the GCC which reached 79 percent at the end of the second quarter of 2023.
Total net income reached $13.7 billion with a q-o-q increase of 3.5 percent supported by both higher net interest income and non-interest income during the quarter. Higher interest rates supported net interest income during the quarter. A decline in loan loss provisions from $3 billion to $2.7 billion also supported bottom-line performance.
“Meanwhile, rising interest rates had a twin impact on banks globally. On one hand, higher interest rates affected lending, especially in the mortgage market and at the same time higher interest rates affected banks’ bond holding value resulting in the failure of some banks in the US and Europe as investors became alert,” the report said.
“However, differences in economic fundamentals also played a role in delineating differing impacts in the West versus Asian markets. Asia’s two biggest economies, India and China, followed a different path. India’s central banks more recently paused rate hikes to avoid economic slowdown while China implemented rate cuts as several sectors witnessed a severe slowdown including real estate,” the Kamco Invest report said.
Cost optimisation
The GCC banks once again demonstrated cost containment measures during the second quarter of 2023 which was reflected in the aggregate operating expenses during the quarter. Total operating expenses registered the second consecutive quarter of decline by 0.7 percent to reach $11.1 billion during the second quarter of 2023.
Qatari banks reported the biggest q-o-q decline in operating expenses at 8.6 percent followed by Kuwait and UAE-listed banks with cost declines of 4.8 percent and 1.1 percent, respectively. On the other hand, Saudi banks once again added costs with higher operating expenses that reached $3.6 billion with a q-o-q increase of 4 percent. Banks listed in Bahrain also showed an increase of 5.9 percent in their quarterly operating expenses.
