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MANAMA: Bahrain’s banking sector net profits more than doubled quarter-on-quarter (QoQ) during the first three months of the year, climbing back to the level last seen in Q3-2019, shows a new report.
Analysing financials reported by 59 listed banks in the GCC, including nine lenders in Bahrain, Kuwait-based Kamco Invest found that total profits reached $8.4 billion during the quarter, up 62 per cent year-on-year (YoY) and 14.2pc sequentially (QoQ).
Only six of the 59 banks reported a QoQ decline in profits during Q1-2021 while 17 banks reported a YoY decline.
The improvement was mainly led by a 41pc or $2.5bn QoQ drop in loan loss provisions (LLP) that reached a six-quarter low level of $3.6bn in Q1-2021.
This was partially offset by a decline in the topline as banks continue to deal with the low interest rate environment.
The impact of Covid-19 was apparent as GCC banks slashed cash dividend payments by almost half, from $14.6bn for FY-2019 to $8bn for FY-2020.
“Shareholders of banks in the GCC received significantly less cash dividends for FY-2020 as banks in the region were either virtually barred from paying dividends due to the regulatory relaxations for Covid-19 or made a much smaller dividend payment,” said Junaid Ansari, the head of investment strategy and research at Kamco.
“The cuts also came as a result of restrictions from regulators in exchange for relaxations on the capital front.”
As many as 17 banks in the region cancelled FY-2020 dividend payments due to Covid-19 related issues.
Bahraini banks made the biggest percentage cuts to dividends at 72.4pc.
This was also the second consecutive year of dividend cuts in the GCC, one of the first since the financial crisis, after FY-2019 dividends were cut by $3.9bn.
On the business side, lending growth continued for the fourth consecutive quarter in Q1-2021.
Aggregate net loan growth during Q1-2021 stood at 1.8pc QoQ for the GCC banking sector to $1.52 trillion led by a broad-based growth seen in five out of six countries in the GCC.
Meanwhile, customer deposits showed growth across the board reaching $1.89trn at the end of the quarter with a QoQ growth of 2.3pc.
The faster pace of growth in customer deposits versus net loans resulted in a lower aggregate loan-to-deposit ratio for the GCC banking sector at 80.2pc.
Bahraini banks also reported a marginal improvement in the ratio but continue to report the lowest ratio in the region at 67.7pc.
Stability
Total banking sector assets for the GCC continued to climb for the fourth consecutive quarter reaching a new record high of $2.51trn.
Meanwhile, the stability in oil prices at over the $65/b level has somewhat alleviated concerns related to government revenues and estimates now point to a much lower funding requirements.
That said, government spending plans remain intact and as a result break-even oil prices are above the current oil price for all the GCC countries, barring Qatar, according to the IMF.
Sovereigns are also looking for private participation in the economic activity as seen from a number of PPP projects awarded recently.
This, says Kamco, augurs well for GCC banks, especially given the unutilised lending capacity.
Nevertheless, the unwinding of banking related Covid-19 relaxations would present new challenges for the sector during the 2nd half of the year.
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