GCC Banks Record Strong Growth Despite Low Interest Rates

Banks in the Gulf region have registered strong growth in earnings despite historically low interest rates, according to a report by Standard & Poor.

Improving asset quality and falling credit losses have offset the downside of lower net interest margins, the agency said.

The report estimated that declining credit losses will continue to support GCC banks’ earnings throughout 2014.

“Prospects for economic growth in the Gulf region remain healthy for the next few years,” said Standard & Poor’s analyst Timucin Engin.

“We expect most Gulf banks to continue to benefit from robust corporate activity and consumer consumption over the next 18 to 24 months. The many infrastructure projects planned in the Gulf should translate into sustained streams of corporate lending.”

The report said that strong liquidity flows into the Gulf’s deposit markets have also supported the region’s banks, which have traditionally relied on local deposits for funding.

“Regional sovereigns and their affiliated entities are key depositors in the local markets, and their fiscal positions should continue to be bolstered by strong oil prices,” the report said.

Standard & Poor also predicted that banks in the region are well positioned to comply with the incoming Basel III rules.

“Most banks already have significant levels of high-quality capital, as their reported Tier I ratios indicate. In addition, given their strong earnings generation, Gulf banks can boost their capital if needed by minimizing dividend payouts,” the ratings agency said.

Gulf banks have been posting healthy profit growth figures this year, signalling the economic recovery of the region and the re-emergence of an appetite to lend.

Dubai’s largest lender Emirates NBD reported a 34.8 per cent jump in Q2 profits, earning Dhs1.31 billion during the second quarter of this year while government-owned National Bank of Abu Dhabi’s profits rose 17.5 per cent to reach Dhs1.42 billion in the second quarter.

Qatar National Bank, one of the largest lenders in the region, saw profit rising by 1.5 per cent to reach $752.2 million in the second quarter of 2014.