GCC banks resilient despite margin pressures

KPMG, a leading global audit, tax and advisory firm, yesterday launched a GCC wide banking study which states that banks in the region have been resilient despite margin pressures, increased impairment charges and higher funding costs.
Titled GCC Listed Banks Results, the report analyses the published annual earnings (FY2016) of 56 leading listed commercial banks across six GCC nations, covering over 90 per cent of the region’s listed banking assets.
The report, which is published under the theme ‘Navigating through change,’ highlighted that net profit succumbed to margin pressures and higher impairments costs and witnessed a YoY decline for the first time in recent years.
The credit quality of many banks also deteriorated with overall impairment charges increasing by approximately 25 per cent from 2015.
Despite these challenges, asset growth stood at a robust 6.5 per cent on average across the region, driven by increased lending to government and related entities.
Mirroring the increased capital raising activity during the year, overall capital adequacy and liquidity ratios on the banks’ balance sheets increased in 2016, helping banks grow and remain above minimum capital adequacy requirements.
This figure could reach 18 per cent in some GCC countries by 2018, well over the eight per cent requirement under Basel III.
Even though considerable challenges are expected to prevail in the coming months, overall long-term outlook for the GCC banking sector remains relatively positive.
Key themes that are expected to govern the sector include the likely implementation of VAT and IFRS 9 in January 2018, digitisation, cybersecurity, and improved cost and operational efficiencies, and higher capital and fund raising activity.
Commenting on the findings of the study, Omar Mahmood (pictured), Head of Financial Services for KPMG in the Middle East and South Asia said, “In what has been a challenging economic year globally, most of the challenges specific to banking have remained constant over the past 12 months, and the drop in profits reflects this.
However, we are increasingly seeing banks looking to create efficiencies and find innovative ways to stay relevant to customers. One example of this is the gradual shift from banks looking to win the ‘battle of the balance sheet’, towards a focus on the ‘battle of the customer.’
A large number of regional banks are constantly looking at ways to improve the customer experience, underpinned by their ability to offer innovative products and services.”