Image used for representation only.
Doha, Qatar: The GCC banking sector witnessed continued growth in lending during the second quarter (Q2) of this year despite interest rates reaching decades-high levels following rate hikes in the US.
Aggregate outstanding credit facilities in almost all the countries in the 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. Moreover, several new big-ticket projects and reform initiatives were announced in the GCC giving further boost to corporate lending, according to a report released by Kamco Invest.
“Aggregate gross loans for GCC-listed banks reached a new record high of $1.9 trillion at the end of Q2, 2023. The quarter on quarter (q-o-q) growth stood at 1.9 percent or $36.3bn 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,” it stated.
The data from GCC central banks showed a growth in lending activity across the region during Q2, 2023 although the rate of growth decelerated in several markets during the quarter. Saudi Arabia recorded the strongest growth in outstanding credit facilities during Q2, 2023 at 2.5 percent while growth in Kuwait, Qatar, Bahrain and Oman were below 1 percent. Growth in Saudi lending was led by utilities, real estate and trade sectors that saw more than 5 percent q-o-q growth during Q2, 2023.
Total net income reached $13.7bn 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 $3bn to $2.7bn also supported bottom-line performance.
The report noted that the credit growth in the GCC remained strong during Q2,2023 despite higher interest rates, indicating strong economic activity and business confidence in the region. Manufacturing activity data from Bloomberg (Markit Whole Economy Surveys) showed PMI figures stayed strong during the quarter above the growth mark of 50 for Dubai, Qatar, Saudi Arabia and UAE.
Qatar and UAE boasted strong PMI figures of 56.9 and 53.8 during June, 2023. The manufacturing activity in Saudi Arabia also remained robust with PMI at 59.6 points during June-2023 and remained elevated at during July-2023 at a slightly lower mark
of 57.7.
The aggregate return on equity (RoE) for the GCC banking sector continued to show improvement during Q2, 2023 reaching one of the highest levels over the last few years at 13 percent as compared to 12.6 percent at the end of Q1, 2023, reaching almost pre-pandemic levels.
The ratio also improved in terms of y-o-y comparison by strong 160 bps supported by an increase in aggregate 12-month profitability coupled with a relatively smaller growth in shareholders’ equity. Total shareholder equity reached $392.4bn at the end of Q2-2023, registering an increase of 2.3% as compared to a marginal decline reported in Q1, 2023.
