KPMG: Qatari Listed Banks Post Highest Sector Average for ROE in GCC

KPMG recently released the seventh edition of its GCC listed banks’ results report which analyses the financial outcomes and key performance indicators for the leading listed commercial banks across the GCC, as compared to the previous year. The report provides banking industry leaders with succinct analysis along with insights and forward-looking views. The report titled ‘A new reality’ highlights some of the major financial trends identified in the banking sector across the region. Through the publication, KPMG aims at sharing the views of the heads of Financial Services from its member firms in the six GCC countries, where they share insights on their respective banking markets, specifically on the financial results of the leading listed banks. In addition, KPMG trusts that its analysis, insights, and predictions will continue to help drive banking strategies and shape the industry across the region.

Commenting on some of the significant trends concerning the GCC banking sector, Omar Mahmood (pictured), Head of Financial Services for KPMG in the Middle East and South Asia, and Partner at KPMG in Qatar stated: “2021 was a redefining year for banks in the GCC. The banks emerged more resilient from an unprecedented year impacted by COVID-19, witnessing improved profitability, a greater focus on digital transformation, ESG gaining prominence, and agile working becoming the norm”. In the Qatar banking sector, the report indicates that: the Qatar National Bank continues to maintain the top spot for the largest bank in the GCC in terms of assets; Qatar’s listed banks had the highest sector average for ROE (13.7%) vs a GCC average of 11.3%; Qatar’s listed banks were the clear leaders amongst their GCC peers in terms of their cost-to-income ratios (23.3%), versus a GCC average of 41.1%, demonstrating the success of tight cost control measures across the sector; Non-performing loan coverage ratio was also highest amongst the GCC banks (92.0%) versus a GCC average of 66%; however Qatar was also the only GCC country to report an increase (19.2%) in the average net provision charge, versus a GCC average decline of 14.5%, reflecting a continued cautious approach amidst a challenging credit environment.

Other key highlights from the report are a 35.8% increase in profitability, after a double-digit dip in 2020, which was primarily due to reduced cost of funds and lower loans provisioning by 14.5%. Market sentiment also followed the fundamentals with a 36.6% rise in listed bank share prices. There was a noted improvement across numerous key financial metrics with a robust asset growth of 6.4%, ROE and ROA improving by 0.3% and 2.8% respectively, an increase in the capital adequacy ratios to a sector average of 19.0%, and a cost reduction in the cost-to-income ratio by 0.3%. The report also presents a forward looking view of “A new reality” being established with six key themes for the GCC banking sector. Lending is expected to be cautious and selective as banks focus on quality while effectively managing their NPLs and loan impairment across all sectors of the economy. Costs are expected to decline further as the effects of digital investment and consolidation come to fruition. Digital transformation will most likely continue as technology and innovation become business as usual and as banks embrace disruptive trends. ESG is likely to remain a front-and-center focus for investors, regulators, banks, and customers. The rising interest rate environment and effective NPL management is likely to help drive profitability and growth.

Lastly, KPMG sees a robust economic environment, fueled by higher oil prices that could help to stabilize any potential credit volatility and continue to support a resilient GCC banking sector. Overall, GCC banks emerged more resilient despite a challenging year. Mahmood noted: “GCC banks have rebound after a difficult year courtesy of proactive balance sheet management backed by effective government support. This had cast a strong foundation for future growth while also being prepared to withstand the current and continued challenges and threats posed by the global economic conditions”.