Profitability for the GCC banking sector reached one of the highest yearly levels in 2021, increasing by 40% to reach $35 billion. However, profits remained below pre-pandemic profits of 37 billion reported in 2019. The year-on-year increase in 2021 was broad-based across the GCC with profits for Kuwaiti banks almost doubled to $2.9 bn.
Saudi and UAE-listed banks also reported healthy profit growth of 40.2% and 52.6% during the year. Higher profits also pushed the aggregate return on equity for the sector to a 7-quarter high level of 10.4% at the end of 2021 as compared to 9.6% in Q3-2021 and 8.1% at the end of 2020.
Increased revenues
The growth in profits during the year was led by an increase in total bank revenue as well as a decline in loan loss provisions. Total bank revenue increased by 6.9% to reach $90 billion during 2021, one of the highest on record mainly led by a growth of 17.6% in non-interest income further supported by a relatively smaller growth of 2.3% in net interest income.
Revenue growth was broad-based across the GCC with Qatari banks reporting the biggest growth of 9.9% followed by UAE and Kuwaiti bank revenue growth of 9% and 7.1%,
respectively. UAE-listed banks reported the biggest growth in non-interest income at 31.7% but was the only market to report a drop in interest income during the year by 3.2%.
Loan loss provisions decline
Loan loss provisions (LLP)reported by GCC banks declined by more than a quarter in 2021 to reach $14.9 billion vs. $20.4 billion in 2020. However, LLP remained elevated as compared
to pre-pandemic levels with an average LLP of $9.1 billion for the 10 years preceding the pandemic (2010-2019).
The decline in LLP during 2021 was seen across the GCC, barring Qatar, which reported an increase of 20.1% or 0.6 billion.
Growth decline in lending, customer deposits
In terms of quarterly trend, growth in lending decelerated during Q4-2021 to three-quarter-low gross loan growth of 1.2% to reach $1.7 trillion. The subdued growth came after strong lending growth recorded by banks in Kuwait (+3.7%) and Saudi Arabia (+2.8%) were partially offset by below 1% growth in UAE, Bahrain, and Oman and a decline of 0.6% reported by Qatari banks during the quarter.
Customer deposits also showed a similar trend during Q4-
2021 with a growth of 1.2%, also a three-quarter low, to reach $2.0 trillion. As a result, the loan-to-deposit ratio for the aggregate GCC banking sector declined marginally by
10 bps to reach a five-quarter low level of 79.9.
