KPMG releases the GCC listed banks' results report for 2020 and analyzes key trends that have redefined the GCC banking sector

This report provides banking industry leaders with succinct analysis along with insights and forward-looking views

  
Bhavesh Gandhi

Bhavesh Gandhi

Kuwait: KPMG recently released the sixth edition of its Gulf Cooperation Council (GCC) listed banks’ results’ report which analyzes the financial outcomes and key performance indicators for the leading listed commercial banks across the GCC, as compared to the previous year. This report provides banking industry leaders with succinct analysis along with insights and forward-looking views. The report titled ‘Banks redefined’ highlights some of the major financial trends identified in the banking sector across the region. Through this publication, KPMG aims at sharing the views of the heads of Financial Services from its member firms in the six GCC countries, where they share insights on their respective banking markets, specifically on the financial results of the leading listed banks. Furthermore, KPMG hopes that its analysis, insights, and predictions will continue to help drive banking strategies and shape the industry across the region

While the onset of the COVID-19 pandemic resulted in financial disruptions the world over, it also enabled banks to redefine their business models. Overall, the capital adequacy ratio increased from 18.4% in 2019 to 18.7% but the net profit declined from USD 36.6 billion in 2019 to USD 25.4 billion in 2020. Additionally, total assets and cost-to-income ratio rose from USD 2.3 trillion to USD 2.5 trillion and from 40.4% to 41.4%, respectively.

Citing some of the key trends associated with the Kuwait banking sector, Bhavesh Gandhi, Partner and Head of Financial Services at KPMG in Kuwait stated, “The Kuwait banking sector has reported a growth of 5.3% in total assets, however, net profit has declined by 52.8% due to historic low interest rates in 2020 and higher charge for provision for credit losses, on account of the COVID-19 pandemic. The Kuwait banking sector is well capitalized with the average capital adequacy ratio of 17.9%, which is comfortably higher than the CBK’s mandated minimum of 13.0%.

The overall non-performing loans (NPL) ratio for the GCC banking sector has increased by 0.4% and now stands at 3.4%. Speaking about the NPLs, Bhavesh adds “The non-performing loans ratio increased by 0.3% amid the crisis and remained at a low level of 1.6% in 2020. It is predicted that NPL and loan impairment will rise in 2021 as the true effects of the pandemic on businesses become clearer. Asset growth is not anticipated to pick up significantly from the last year as banks adopt a more cautious approach to lending and banks are expected to proactively manage their non-performing portfolios through possible sales and write-offs.”

Regionally, in 2020, banks had experienced margin pressures, so cost and operational efficiencies are expected to remain a top priority for management in 2021. Banks need to maintain a balance between face-to-face client interactions and remote working to retain their top talent and reduce of real estate costs. The pandemic has encouraged banks to become agile and accelerate their digital transformation plans by adopting branchless and cashless models. Banks in the region must also embrace technology for areas such as cybersecurity, Basel IV regulations, eKYC, anti-money laundering, etc.

Looking in the future, the GCC banks may prepare for profitability getting impacted due to the pandemic. However, the situation might not be as bad as 2020 owing to reasons such as shrinking profit margins, slower loan growth and rising loan provisioning.

Furthermore, the ESG (environmental, social and governance) agenda is expected to gain more importance this year and beyond as investors place better scrutiny around banking practices. Lenders in the region have also been consolidating as they aspire to stay competitive. Mergers in 2020 as well as potential mergers in future could create stronger and larger financial institutions and this consolidation is expected to continue in 2021.

All things considered, ‘cautious optimism’ would be the way forward for the GCC banking sector. Currently, banks are reasonably positioned to combat the economic challenges. However, the uncertainty of the pandemic could result in muted growth with greater caution.

About Bhavesh Gandhi:

Bhavesh is a Partner and Head of Financial Services at KPMG in Kuwait and has more than 20 years of experience working with national, regional and international banks and other financial institutions. Bhavesh works closely with Banks in Kuwait and help and advise them on various regulatory and non-regulatory financial risks. He also helps banks and other financial institutes to be up to date with the international financial reporting and other regulatory standards.

About KPMG:

KPMG is an international group of independent member firms. It operates in 145 countries and territories and has more than 226,882 people working in member firms around the world. KPMG in Kuwait operates via its two member firms — KPMG Safi Al-Mutawa & Partners and KPMG Advisory W.L.L. It offers a range of tax, audit, and advisory services to its clients including major corporations, public sector agencies, government institutions, and non-profit organizations. Furthermore, it has been assisting SMEs right from idea conceptualization to implementation, and helping with business plans, feasibility studies, system and policy requirements, and back-office accounting support.

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