Financial services companies continue to dominate the Middle East’s capital markets with 46 of the region’s 100 largest listed companies by market capitalisation in the financial services sector.

This is a marginal decline on the 47 financial institutions in the Top 100 in 2013, but the dominance of the sector still clearly demonstrates the continued lack of diversification in the region’s capital markets.

Although the number of banks in the MEED 100 fell by one, the overall market capitalisation of the banking sector leapt by 33 per cent from $287bn last year to $381bn. This is a much more significant jump than the 5 per cent growth in market capitalisation between 2012 and 2013.

A large proportion of the banks also climbed in rank or remained in the same position this year; a further sign of a strengthening banking sector. A total of 24 institutions stayed at the same level or moved up a position in 2014 compared with 27 recorded in 2013.

Although a slight decline on 2013 numbers, this generally positive upward trend stands in contrast to 2012, when more than 50 per cent of the banks fell to a lower position on the table as the sector continued to digest the negative impact of the 2008-09 global financial crisis.

The most significant change this year is that Qatar National Bank (QNB) has now overtaken Saudi Arabia’s Al-Rajhi Bank as the region’s largest listed lender, and is the second-largest listed company behind Saudi Basic Industries Corporation (Sabic). Although QNB was the most profitable lender in the 2013 table, it sat in fourth place, having been overtaken by Industries Qatar.

Qatar National Bank has now overtaken Saudi Arabia’s Al-Rajhi Bank as the region’s largest listed bank

QNB reported strong growth in profitability in 2013, while increasing assets and maintaining a low non-performing loan ratio. Profits rose by almost 13.7 per cent on 2012 to reach $2.6bn. The strong growth achieved by QNB is reflected across the Qatari banking sector. According to QNB research, loan growth in the country rose by 23 per cent in 2013 compared with the previous year, as banks responded to demand for financing to support the government’s growing pipeline of infrastructure projects.

The Saudi banking market continues to dominate the sector, with Al-Rajhi Bank one of 12 Saudi banks listed in the Top 100, which have a combined market capitalisation of $132.5bn, or 35 per cent of the sector total.

The kingdom’s banking industry is predominantly focused on financing domestic creditors with only a handful participating in deals outside the kingdom. The market is highly liquid and increasingly competitive, with lenders vying for business by cutting pricing. Banks are largely struggling to generate strong income in the low interest rate environment.

Al-Rahji Bank saw its net profit fall to $1.98bn in 2013, from $2.1bn in 2012, on higher expenses and impairments, even though assets and revenues grew.

Despite the tight competition, four banks moved up a ranking this year, which is more than the two Saudi banks that moved in a positive direction last year.

Within the UAE, Abu Dhabi banks continue to be far stronger than their Dubai counterparts. First Gulf Bank is the ninth-largest listed firm in the region, having moved up eight positions from last year, while National Bank of Abu Dhabi is ranked 10th, climbing four places from 2013.

Yet Dubai banks are beginning to gain ground, as institutions finish cleaning up their balance sheets, tackle their problem loans accumulated during the financial crisis and position themselves for increased lending activity in 2014.

Dubai-based Emirates NBD has increased its market capitalisation by 108 per cent on last year’s figures, rising from $5.84bn to $12.18bn. The increase pushed the bank up 12 places to 21. Dubai Islamic Bank also climbed, while Mashreq Bank jumped 26 places with its market capitalisation reaching $4.72bn, helping it regain ground lost in 2013.

Mashreq has also improved its asset quality by reducing its non-performing loans to gross loans ratio from 9.4 per cent in December 2012 to 6 per cent by the end of 2013. The bank posted strong growth in 2013, with profit increasing by 38 per cent to reach AED1.8bn.

The highest-ranking non-GCC bank remains Morocco’s Attijariwafa Bank with a market capitalisation of $7.67bn, despite falling five places since last year. 

Egypt has just one bank within the Top 100, with Commercial International Bank listed at 59th position. The banking sector of the North African country has been constrained by ongoing political instability and limited economic activity following the ousting of President Hosni Mubarak in 2011 and President Mohamed Mursi in July 2013.

Iran is this year only represented by Ghadir Investment, with Parsian Bank and Mellat Bank, listed at 71 and 76 respectively in 2013, dropping out of the table. A total of 12 Iranian financial institutions were listed in the MEED 100 in 2012, but their declining market capitalisation is a result of tightened international sanctions on Tehran and the depreciation of the rial. 

Iranian banks might start to gain ground over the coming year as the EU and US begin some limited easing of sanctions that could revive the country’s beleaguered economy.

A possible new entrant into the 2015 table will be Saudi Arabia’s National Commercial Bank (NCB). According to the Saudi Press Agency, the government intends to sell off 15 per cent of the kingdom’s largest lender through an initial public offering (IPO). At the end of 2013, NCB’s assets were estimated at about SR360bn ($96bn), while its net income for the year was estimated at SR6.16bn. The plan for the IPO is expected to be submitted to the regulator in the third quarter of 2014.