The largest rate was for Bahraini banks with 72.4%.. Gulf banks reduce dividends by 45.4%

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Bank shareholders in the Gulf Cooperation Council (GCC) countries received significantly lower cash dividends compared to fiscal year 2020, as banks in the region were effectively prevented from paying dividends due to the facilities approved by regulators to contain the repercussions of the Covid-19 pandemic, or they paid much lower cash dividends than previously. Dividends for fiscal year 2020 decreased by $6.6 billion to reach $8.0 billion, compared to $14.6 billion in fiscal year 2019. This decline came after 17 banks in the region canceled their dividends for fiscal year 2020 mainly due to problems related to the pandemic. Dividends also declined for the fiscal year 2019 in light of some banks reducing their dividends even for the previous year. Cash dividends for fiscal year 2019 decreased by 21 percent compared to dividends of $18.5 billion in fiscal year 2018.

The decline in cash dividends was evident throughout the Gulf Cooperation Council countries, in light of the fact that banks operating in all Gulf countries cut dividends. Bahraini banks carried out the largest percentage reduction in dividends, which amounted to 72.4%.

Saudi banks reduced cash dividends by 64.1%, or $2.4 billion, to reach $1.3 billion in fiscal year 2020, while UAE-listed banks reduced their dividends by 36.4% to $3.3 billion, which is the highest cash dividend in absolute terms. In the Gulf Cooperation Council countries this year. On the other hand, Qatari banks witnessed the lowest rate of decline in dividends during the year by 25.4%, as they paid cash dividends of $2.1 billion.

On the business front, lending activities continued to grow for the fourth consecutive quarter. Total loans (excluding Kuwaiti banks) reached $1.43 trillion at the end of the first quarter of 2021, registering a growth of 3.5 percent on a quarterly basis.

However, total net loans (including Kuwaiti banks) rose at a much slower pace of 1.8% q/q to reach $1.52 trillion by the end of the quarter.

The UAE was the only country in the region that recorded a decline in net loans by 0.7%, while the rest of the Gulf Cooperation Council countries recorded growth on a quarterly basis. At the same time, customer deposits grew across the GCC to reach $1.89 trillion at the end of the quarter, posting a 2.3 percent quarter-on-quarter growth. The acceleration in the growth of customer deposits compared to net loans led to a decrease in the loan-to-deposit ratio to reach 80.2%.

Total assets continued to increase for the fourth consecutive quarter, reaching a new record high of 2.51 trillion US dollars. Growth was observed in all GCC countries, where Omani banks recorded the largest percentage growth in total assets at 3.2 percent despite the fact that the banking sector in the Sultanate remains the smallest in terms of total assets of listed banks amounting to $81 billion. By the end of the first quarter of 2021. UAE banks acquired the largest share of the balance sheet of regional banks with total assets of $818 billion.

On the other hand, the stability of oil prices above the level of 65 US dollars per barrel contributed to reducing concerns about government revenues to some extent, and it is now estimated that funding requirements have decreased significantly. However, government spending plans have not undergone any changes, and as a result, the break-even oil price in Gulf budgets is still higher than the current oil price for all GCC countries, with the exception of Qatar, according to the International Monetary Fund. Sovereign authorities are also looking forward to the participation of the private sector in economic activity, as evidenced by the launch of several partnership projects between the public and private sectors during the recent period. From our point of view, this will contribute to enhancing the performance of Gulf banks, especially in view of the unused lending capacity that characterizes them, as the ratio of loans to deposits for Gulf banks is considered one of the lowest in the world, with a ratio of up to
80.2 percent. However, the end of the easing measures related to the COVID-19 pandemic by the banks will pose challenges for the sector in the second half of 2021.

This report includes an analysis of the financial data announced by 59 banks listed on the stock exchanges of the Gulf Cooperation Council countries for the first quarter of 2021. This report includes the compilation of individual banking data at the level of each individual country. The main highlights based on the analysis of the latest financial statements on a quarterly basis for the Gulf banking sector include the following points:

The return on equity of the Gulf banking sector marginally improved for the first time in six quarters. However, the growth rate remained relatively low compared to historical levels of about 8.2 percent for the banking sector in the GCC as a whole, rising by 10 basis points from its lowest level recorded at the end of the year 2020. In terms of performance on an annual basis, the growth rate contracted By 370 basis points, mainly due to lower gross profit. Total equity remained above $300 billion at $311.1 billion, down marginally by 0.5 percent from the previous quarter. This is also a seasonal decrease in shareholders’ equity in the first quarter of 2021 as a result of dividend announcements by banks during the first quarter of the year.

At the individual country level, Qatari banks continue to achieve the highest average return on equity by 11.6 percent, despite a decrease of 20 basis points compared to the previous quarter and 220 basis points compared to the first quarter of 2020. Saudi banks came in second place with their Average return on equity of 9.2 percent (+30 basis points sequentially) followed by UAE banks at 7.2 percent (+20 bps sequentially). On the other hand, Kuwaiti banks recorded the lowest average return on equity by 4.6 percent after declining by 440 basis points compared to the first quarter of 2020.

The cost-to-revenue ratio of the banking sector remained high above the 40% level, reaching 42.9% during the last twelve months until the end of the first quarter of 2021. However, there was a decline from one of the highest levels we witnessed last year when this ratio reached 43.7 percent for fiscal year 2020. This rate is still affected by the increase in operating costs in absolute terms, which amounted to $8.2 billion in the first quarter of 2021, compared to $8.8 billion in the first quarter of 2020 and $9.2 billion in the fourth quarter of the year 2020. Costs averaged about $7.5 billion for each quarter prior to 2020. In addition, the decline in total bank revenues also affected the cost-to-revenue ratio.

At the individual level for each country, costs remained the highest in the case of Bahraini banks at 61.1%, followed by Omani banks with 47.6%.

Saudi banks also recorded the highest cost-to-revenue ratios of 46.4% during the last twelve months until the end of the first quarter of 2021. On the other hand, Qatari banks recorded the lowest cost-to-revenue ratio of 31.1%, which also reflects the high ratio of loans to deposits in Qatari banking sector.

The net profits of the banking sector in the GCC countries witnessed a remarkable recovery during the first quarter of 2021 on the back of broad-based growth across the region. This growth is mainly due to the increase in total profits at the level of the six member states of the Gulf Cooperation Council. Net profit was $8.4 billion during the quarter, up 62 percent year-on-year and 14.2 percent quarter-on-quarter. This improvement was mainly driven by a decline in loan loss provisions by 41 percent or $2.5 billion q-o-q, reaching its lowest level in six quarters, reaching $3.6 billion in the first quarter of 2021.

Net interest margin hits multi-quarter low with low interest rates…

The decrease in net interest income during the first quarter of 2021 led to a decrease in the gross net interest margin for the banking sector in the GCC, with the ratio dropping to one of the lowest levels
over the past few quarters. The gross net interest margin for the Gulf banking sector shrank to 2.8 percent in the first quarter of 2021 compared to 2.9 percent in the fourth quarter of 2020. The continued growth in asset earnings over the past four quarters also contributed to the decline. The net interest margin contraction was widespread across the Gulf countries during the first quarter of 2021, as UAE banks witnessed the largest quarterly decline of 14 basis points during the quarter. The ratio was the highest in the case of Saudi banks at 3.37 percent during the first quarter of 2021 and was the only country in the Gulf Cooperation Council countries that recorded a rate of more than 3.0 percent in the Gulf Cooperation Council countries.

The total revenue of the Gulf banking sector marginally decreased by 0.6 percent on a quarterly basis during the first quarter of 2021 after witnessing a healthy growth of 5.7 percent during the previous quarter. The decline in the first quarter of 2021 was mainly due to a decrease in net interest income which was partially offset by an increase in non-interest income. Non-interest income grew for the third consecutive quarter during the first quarter of 2021 by 2.3 percent q-o-q to reach $6.7 billion. The increase was driven by the increase in non-interest income recorded by banks in the UAE, Saudi Arabia and the Sultanate of Oman, which was partially offset by decreases recorded by banks in Bahrain, Kuwait and Qatar. On the other hand, after experiencing growth over the past two quarters, total net interest income decreased by 1.9 percent q-o-q during the first quarter of 2021 to reach $14.4 billion. This decline came on a quarterly basis after the decrease in net interest income recorded by Gulf banks with the exception of Qatari and Bahraini banks.

The overall net loan growth for the first quarter of 2021 was 1.8 percent q-o-q for the GCC banking sector to reach $1.52 trillion, with broad-based growth in five out of the six GCC countries. The annual growth compared to the first quarter of 2020 was strong at 11.3 percent, slightly lower than the growth in total loans which grew by 13.9 percent during the same period (excluding Kuwaiti banks). Saudi banks recorded the largest quarterly increase in net loans during the first quarter of 2021, with a growth of 5.1 percent, followed by Omani and Qatari banks, which recorded growth rates of 2.1 percent and 1.5 percent, respectively.

The trend in customer deposits was also positive across the GCC, with all six countries reporting quarterly and yearly growth during the first quarter of 2021. As a result, total customer deposits for the sector grew by 2.3 percent compared to the previous quarter to reach $1.9 trillion. . Banks in Qatar recorded the largest quarterly increase in customer deposits by 3.9 percent to reach $379 billion, followed by Omani and Saudi banks with growth rates of 2.9 percent and 2.1 percent, respectively. Banks in Kuwait and the United Arab Emirates also recorded a growth rate of 2.0 percent and 1.8 percent, respectively.

The gross loan to deposit ratio in the Gulf banking sector remained above 80 percent at the end of the first quarter of 2021 to reach 80.2 percent, but recorded a decrease of 30 basis points compared to the fourth quarter of 2020. At the country level, banks recorded Saudi Arabia has the largest increase in the loan-to-deposit ratio of 82.7 percent after experiencing a quarterly growth of 230 basis points. Bahraini banks also recorded a marginal improvement in the ratio, but it continues to record the lowest percentage in the region at 67.7 percent. The loan-to-deposit ratio in the rest of the Gulf Cooperation Council (GCC) countries declined on a quarterly basis.

Credit growth is the key to the full recovery of the sector…

The decline in interest rates since the beginning of last year and expectations that interest rates will remain low in the near term are likely to affect the revenues of the banking sector globally. The latest data from the US Federal Reserve shows that rates are expected to remain low and there is no sign of a rate increase until 2023. This means that cheap money will be available for companies to invest at least in the near term. In addition, higher oil prices and economic recovery eased pressure on the GCC’s currency pegs, which led to the formulation of stable policies.

The decline in seeing a recovery in the credit sector due to uncertainty related to the pandemic has put additional pressure on the profitability of banks. Business failures during the pandemic also affected bottom line performance, although government support eased some concerns. Moreover, with the lifting of measures such as loan deferral programs and regulatory facilities on recognition
With bad loans gradually this year, the sector could see deteriorating regulatory ratios and poor asset quality, as highlighted by Fitch in a recent report.

The recovery in profitability will depend to a large extent on the economic recovery in the region which will support credit growth. There are positive signs on various levels, including the project market which is now expected to have bottomed and is expected to see $114 billion in new contracts awarded this year, according to MEED. This will be the highest award value to be awarded in five years. Central bank data for the first quarter of 2021 also showed optimistic data for most of the Gulf Cooperation Council countries, with growth in Saudi Arabia, Qatar and Kuwait.

Saudi Arabia showed the strongest quarterly growth in credit with a growth of 5.4%, followed by 4.1% for Qatar and 1.0% in the case of Kuwait. On the other hand, the UAE showed a decline of 0.4% during the quarter.





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