Growth driven by increased lending to government and related entities, says new report
Net profits among listed banks based in the Gulf grew by 6.7 percent during 2017 while asset growth remained robust at 4.4 percent, according to a new KPMG report.
KPMG said growth was driven by increased lending to government and related entities to support national-level initiatives.
It added that the overall non-performing loan (NPL) ratio for the GCC banking sector reduced by 0.3 percent to 3.2 percent.
This decline was a result of the more stringent risk policies adopted by banks in recent years, given regulators’ focus on credit, the report noted.
"GCC banks are concentrating on cost reductions and operating efficiency, mainly through digital innovation and technology initiatives reflected by a drop in cost-to-income ratio," it added.
The report said factors pressurising banks were lower return on equity as equity balances increased at a higher rate compared with profit growth rates. Profitability was also impacted due to margin compression arising from higher funding costs, given the greater competition on the liability side of banks’ balance sheets.
Emilio Pera, head of Financial Services for KPMG Lower Gulf, said: “This year’s results have demonstrated the GCC banking sector’s resilience and ability to weather political and economic challenges in the region and across the globe.
"Overall, it looks like banks have performed well in 2017, although growth is still not as high as the sector experienced in recent years, which is reflected in both fundamentals and market sentiment. Looking ahead, we expect that GCC banks will further increase their focus on cost and operational efficiencies to mitigate lower profit growth rates.”