Profitability for the GCC banking sector rose 40% to 35 billion during 2021 to reach one of the highest yearly levels, albeit below pre-pandemic profits of 37 billion reported in 2019.

According to a report on the sector by Kamco Invest, the year-on-year (y-o-y) increase in 2021 was broadly across the GCC with profits for Kuwaiti banks almost doubling to $2.9 billion.

Saudi Arabia and UAE-listed banks also reported healthy profit growth of over above 40% and 52.6% respectively during the year.

Higher profits also pushed the aggregate return on equity for the sector to a seven-quarter high level of 10.4% at the end of 2021 as compared to 9.6% in Q3-2021 and 8.1% at the end of 2020.

The profit growth 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% to reach $90 billion during 2021, one of the highest on record mainly led by a growth of 17.6% in non-interest income and supported by a relatively smaller growth of 2.3% in net interest income.

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

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

The sector’s loan loss provisions declined by more than a quarter in 2021 to reach $14.9 billion versus $20.4 billion in 2020.

However, they remained elevated compared with pre-pandemic levels; average loan loss provisions were $9.1 billion for the 10 years preceding the pandemic (2010-2019). Qatar alone reported an increase of 20% in provisions to $3.4 billion, the second biggest provision booked during the year after UAE-listed banks.

Loan growth

Gross loan growth for GCC banks slowed, hitting the lowest in three quarters of 1.2% q-o-q during Q4-2021 to reach aggregate gross loans of $1.7 trillion.

Kuwait reported the strongest q-o-q growth of 3.7% followed by Saudi Arabia with a growth of 2.8%.  Growth in the rest of the countries remained muted at below 1%. Qatari banks reported a decline of 0.6% q-o-q to reach gross loan of $361 billion.

Net interest margins (NIMs) remained stable at a multi-quarter low level of 2.8% at the end of 2021 reflecting the full year impact of low interest rates as well as normal economic activity for most part of the year in the GCC.

In addition, a smaller growth in net interest income versus earning assets kept a cap on net interest margin growth during Q4-2021.

(Writing by Brinda Darasha; editing by Seban Scaria)