GCC banks report marginal growth in profitability, with UAE leading

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Net profits of GCC banks under our coverage increased 1.3% YoY to USD4.4bn in 3Q13. On a YoY basis, net profits of banks the UAE, KSA and Qatar increased 9.7%, 6.0%, and 0.6%, respectively. Net profit of Kuwait based banks fall 31.4%.

Strong growth in loan books, margin pressure persists

Loan book growth among GCC banks continues to remain strong; it increased 13.6% YoY to USD648.7bn in 3Q13. Banks in Qatar registered the highest growth of 25.4% YoY, followed by those in KSA (11.8% YoY), Kuwait (11.6% YoY) and UAE (9.6% YoY). Due to strong growth in loan book net interest income (NII) of GCC banks rose 10.2% YoY. NII growth was led by Qatar-based banks (25.3% YoY), followed by those in UAE (11.6% YoY) and the KSA (5.7% YoY). Despite compression in cost of fund, combined NIM declined by 11bps YoY due to 23bps YoY fall in interest yield.

Among UAE-based banks, Abu Dhabi Commercial Bank reported a robust 47.1% YoY growth in its bottom-line  on YoY basis during 3Q13 mainly due to a huge increase in fee income (29.5% YoY) and a significant fall  (41.8% YoY) in provision expenses. Emirates NBD reported a robust 21.2% YoY growth in bottom-line mainly  due to increase in net interest income, fee income and one-off gains from investment income as well as  disposal of 32.6% stake in Union Properties P.J.S.C. during the period.

The loan book of UAE banks grew moderately by 9.6% YoY despite recovery in the real estate sector and overall economic growth. The moderate growth can be ascribed to high credit penetration levels and absence of quality lending opportunities. However, due to the recent addition of Dubai Expo 2020 in UAE’s kitty, it is expected infrastructure spending to grow significantly in next few years.

Non-interest income declines

Due to non-occurrence of one-off gains as compared to the same period last year, non-interest income declined for most of the banks. The segment plunged 1.4% YoY in a combined basis; all countries registered a fall in non-interest income, except UAE, which rose 15.8% YoY. Abu Dhabi Commercial Bank registered a 51.0% YoY growth in non-interest income due to a 29.5% YoY rise in fee income.

Asset base records double-digit growth

The asset base of GCC banks expanded 12.4% YoY to USD1trn in 3Q13 with all the countries witnessing stable YoY growth. Increase in loan book supported the overall asset growth.

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