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Banks globally are cashing in. How are GCC’s private sector banks doing?

GCC sovereigns and private banks are feeling the effects of wavering oil prices and trade tensions. Can they keep growing?

Profits in banking have been steadily on the rise since the financial crisis Lower oil prices since 2014 have significantly weakened GCC sovereigns’ public finances GCC banks showed impressive profitability growth, with overall net profit up by 11.8% to $36.1 billion in 2018

Banks are supposed to make money for themselves and their customers, and globally, for the most part, they are.

Is the GCC private sector doing equally well despite the impact of the trade and security tensions around them? Are Public sovereigns in the GCC feeling

Let’s first look at the financial landscape around the globe  

Banks making money 

Profits in banking have been steadily on the rise since the financial crisis.

  1. Just last year, the global banking industry cashed in an impressive $1.36 trillion in after-tax profits ⁠— the highest total in the sector seen in the last 20 years.

Graph by Visual Capitalist

Read: Have it both ways: AI in banking and capital markets

GCC public finances

According to a report by ratings agency Moody’s, GCC countries are feeling the impact of oil prices trending on the low side.

 “Lower oil prices since 2014 have significantly weakened GCC sovereigns’ public finances,” the report noted. “The implementation of fiscal consolidation measures and reforms has been uneven across the six GCC sovereigns and has so far been more concentrated on the expenditure side,”  said Alexander Perjessy, a Moody’s Vice-President, Senior Analyst and the report’s co-author.

If oil prices remain moderate, Moody’s expects that most GCC sovereigns will continue to run fiscal deficits and accumulate debt.

"We expect oil prices to average $62 per barrel in 2019 and 2020, around the midpoint of our $50-70 medium-term projection range and down from the $71 per barrel average in 2018," said Alexander Perjessy, a Moody's Vice President – Senior Analyst and the report's author. "Lower oil prices will weaken GCC sovereigns' fiscal positions."

Moody's Saudi assessment

Moody's UAE assessment

Read: Consolidation, digital transformation, drive UAE's banking sector moving forward

GCC Private sector banking report

According to an executive summary by KPMG, GCC banks showed impressive profitability growth, with overall net profit up by 11.8% to $36.1 billion in 2018.

Total assets up by 4.5% to $2.1 trillion with robust asset growth across all GCC countries.

Bank share prices have exhibited an upward trend with an increase of 25% over the year.

T\here was a fall in total capital adequacy ratio, to 18.5%, yet still well above minimum regulatory requirements.

Overall average Return on Assets (ROA) was up 1.5% and Return on Equity (ROE) was up 11.3%.

The overall cost-to-income ratio has declined by 1.2% from 2017, averaging 40.5% in 2018.

“The economic outlook remains positive for the GCC region, where governments are taking the lead to boost economic growth and improve consumer and investor sentiments. Growth in the GCC recovered to 2.2% in 2018 and 2% in 2019 (expected) after economies began slowing down as a result of their commitment to the recent Organization of the Petroleum Exporting Countries (OPEC) production-cut agreement,” said the report.