Bank profits hold up under deposit strain

14 January 2016

GCC banking results begin to show falling liquidity

Early bank results for 2015 show banking sector profits have held up well, despite slowing or even reversing deposit growth. 

The results will be closely watched to gauge the effects of tightening liquidity across the region on banks’ ability to lend.

Saudi Arabia’s National Commercial Bank (NCB) saw its deposits fall by 3 per cent over the year, while loans continued to grow at 14 per cent. This kept net profit growth at 5 per cent year-on-year, to reach SR9.1bn.

NCB is still well below the Saudi Arabian Monetary Agency’s (Sama) 85 per cent loan to deposit ratio (LDR) limit, at 77.8 per cent, so has room to continue lending in 2016.

Banque Saudi Fransi, on the other hand, saw its LDR rise to 87.1 per cent, and will have to step up its efforts to attract deposits.

Its total deposits fell 2.4 per cent while loans and advances grew modestly at 5.9 per cent year-on-year. Net profits hit SR950m, year-on-year growth of 14.8 per cent despite the more difficult economic conditions.

Other GCC countries saw a gentler slowdown in deposits.

Qatar National Bank, the largest bank in the region, managed to grow its deposits by 10.5 per cent, although this was still outpaced by loan growth of 14.8 per cent. Net profit growth slowed to 7.7per cent, with profits reaching QR11.3bn.

Smaller Qatari banks are expected to post less solid results.

In Oman, market leader Bank Muscat bucked the trend, with deposits up 11.1 per cent year-on-year, while loans and Islamic financing grew 8 per cent. Net profits grew 7.5 per cent to reach RO175m.

Other smaller Omani banks began to feel liquidity pressure. National Bank of Oman grew its deposits by just 3 per cent while lending grew 9 per cent. Its LDR hit 113 per cent, meaning it will have to take serious action to manage its loanbook. Its net profits grew 20 per cent to RO60.1m.

Bank Sohar saw its profits fall 8.5 per cent to RO28m. Customer deposits dropped 5.6 per cent while gross loans grew by 15.8 per cent, pushing the bank’s LDR to 114.9 per cent. Bank Dhofar managed net profit growth of 46 per cent to RO47m, driven by its new Islamic finance window. But its 21 per cent loan growth far outpaced deposit growth of 4.4 per cent. The two banks are planning a merger.

UAE, Kuwaiti and Bahraini banks are yet to begin announcing results.

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