1. QNB Economics
economics@qnb.com
February 23, 2014
Weekly Commentary
Qatari Banks Lead Asset and Loan Growth in the GCC
In Qatar, higher lending associated with large
infrastructure projects, a low cost of funding
and foreign acquisitions have all supported
banks’ growth. Loan growth in Qatar was 23%
in 2013. With the acceleration of investment
projects ahead of the 2022 FIFA World Cup,
these trends are likely to continue going
forward. Meanwhile, deposit growth continued
at a rapid pace, rising by around 24% in 2013,
with the public sector being the key driver for
overall gains, reflecting the large fiscal
surplus. Higher lending, a low cost base and
low provisioning requirements have all
supported the banks’ overall profitability, with
a return on equity of 16.0% in 2013.
Asset and Loan Growth:
Selected GCC Countries
(% change, 2013-2014)*
25
Assets
20
Loans
15
10
5
Selected
GCC
Countries
UAE
Saudi
Arabia
Qatar
Oman
0
Kuwait
The GCC banking sector grew robustly in 2013,
driven by large government-led infrastructure
and investment projects, with Qatar leading
the pack. Most banks in the GCC have healthy
funding profiles, with sound, high-quality
assets in recent years. QNB Group expects this
to enable them to continue to exhibit healthy
credit growth funded by high domestic
liquidity. Looking forward, QNB Group expects
the GCC banking system to grow robustly as
major projects are rolled out across the region,
driving real GDP growth of 4.6% this year. The
GCC’s traditional strengths of strong fiscal
positions and persistent current-account
surpluses are likely to support the banking
sector. GCC banks have adequate liquidity
buffers based on the highly liquid local deposit
base (customer deposits grew by around 11%
in 2013).
Sources: Bloomberg and QNB Group forecasts;
* GCC countries are weighted averages by USD nominal GDP
In the region’s largest banking sector, Saudi
Arabia, asset growth of 8.5% was achieved in
2013 primarily driven by a 10.0% expansion in
credit as the Kingdom rolled out some major
transport infrastructure projects and as traderelated demand grew. The banking system in
Saudi Arabia has a solid and growing deposit
base (8.1% growth in 2013), primarily from the
public sector. As a result of the benign
operating
environment,
asset
quality,
measured by non-performing loans (NPLs)
declined to 1.6% in the first half of 2013. Saudi
Arabian
banks
have sustained their
profitability, with a return on equity of 14.8%
in 2013, owing to a prevalence of low-cost
funding and strong operational efficiency.
The next largest banking sector, the UAE,
achieved asset growth of 8.5% in 2013. This
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2. Weekly Commentary
was driven by strong growth in lending to the
government (around 11%). Credit to private
sector companies and households expanded
moderately (5%). However, lending to the real
estate sector was flat as the government
introduced macro-prudential lending limits to
help prevent overexposure to the real estate
market, particularly in Dubai where property
prices rose 26% in 2013. Overall improvements
in asset quality with NPLs of 9.4% witnessed
in the first half of 2013 drove down loan-loss
provisions which in turn have supported UAE
banks’ return on equity of 12.6% last year.
Kuwait's banking sector continues to remain
moderate, supported by high oil revenues and
government spending. The banking system
continues to remain heavily deposit funded
and benefits from access to government
related deposits. As a result, banking sector
asset growth was 9.0% in 2013. Moderate
credit growth and margin pressures have
constrained revenue growth and thus return
on equity fell to 5.6% in 2013 from 6.6% in
2012. Kuwaiti banks have made considerable
progress in rehabilitating their loan books
following the 2008-09 crisis, and this along
with the healthy operating environment, has
meant that NPLs fell to 3.9% in the third
quarter of last year.
QNB Economics
economics@qnb.com
February 23, 2014
The banking system in Oman remained benign
in 2013 reflecting stable macroeconomic
conditions that have supported low NPLs
(2.2% in the third quarter of 2013), healthy
levels of capitalization and a stable deposit
funding base. Prospects for Omani asset
growth have been sound on the back of the
increase in government spending on
infrastructure – asset growth was an
estimated 8.2% in 2013. In addition, Omani
banks have maintained solid profitability with
a return on equity of 13.1% in 2013.
Furthermore, high government spending has
boosted bank lending in recent years (up 5.2%
in 2013), and a favorable economic
environment will continue to support bank
credit conditions and create lending
opportunities going forward.
Looking ahead, the GCC’s positive economic
growth
outlook,
supported
by
high
hydrocarbon prices and strong government
spending, is expected to support the continued
expansion of the regional banking sector, with
Qatar leading the way.
Contacts
Joannes Mongardini
Head of Economics
Tel. (+974) 4453-4412
joannes.mongardini@qnb.com.qa
Rory Fyfe
Senior Economist
Tel. (+974) 4453-4643
rory.fyfe@qnb.com.qa
Ehsan Khoman
Economist
Tel. (+974) 4453-4423
ehsan.khoman@qnb.com.qa
Hamda Al-Thani
Economist
Tel. (+974) 4453-4646
hamda.althani@qnb.com.qa
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