KUWAIT CITY: With banks looking to navigate through pandemic driven difficulties toward economic recovery and stability, KPMG published the eighth edition of its GCC listed banks’ results. Titled ‘Cautious optimism,’ the report offers a thorough analysis of the financial results and key performance indicators (KPIs) of leading listed commercial banks in the region, in comparison with the previous year, to highlight the main financial trends in the GCC countries.

Bhavesh Gandhi, Partner and Head of Financial Services, KPMG in Kuwait, said, “There are promising indicators of steady financial growth in Kuwait. Our results point out double-digit y-o-y growth in total assets and net profit by average in Kuwait, which is optimistic considering banking sector in the country is fresh off the COVID-19 crisis. It is expected that banks will press forward aggressively in certain aspects, such as digital transformation, but the collective disposition for growth will remain cautious.” Compared to 2021, Kuwait’s banking sector witnessed the highest y-o-y growth in terms of total assets (by average) in the region, climbing by 21.4 percent. Kuwait’s banking sector’s net profit (by average) also had the most significant growth rate in the region, increasing by 36.3 percent to reach 412.9 percent for the year 2022. Kuwait’s banking sector’s y-o-y growth with regard to coverage ratios on stage 3 loans was also the highest, rising by 7.1 percent compared to 2021. Albeit marginal, Kuwait’s banking sector’s returns on equity and assets grew by 0.8 percent and 0.1 percent, respectively.

In terms of average capital adequacy ratio, the banks in Kuwait had a healthy percentage of 17.3 percent, compared to the 18.3 percent in 2021, and well above the 12 percent limit required by the Central Bank of Kuwait. However, the banks in Kuwait saw an increase in the cost-to-income ratio which went up by 4 percent to reach 46.6 percent, compared to the 42.9 percent in 2021.

The following salient findings emerged from the financial results’ analysis for the year-ended 31 December 2022 for the GCC region as a whole:

• Profitability saw another doubledigit increase of 25.3 percent, driven particularly by a growth in loan book, increased interest margin, lower loan impairment and a continued focus on cost efficiencies.

• Asset growth remained robust as banks increased their asset base by 9.9 percent, which was driven by lending to high quality customers.

• Net interest margins increased by 0.2 percent, as a result of the rising interest rate environment, which helped drive profit growth.

• The overall NPL ratio for the GCC banking sector decreased by 0.1 percent and now stands at 3.8 percent, refl ecting the conservative approach to credit risk management.

• Net impairment charges on loans and advances decreased by an average of 11.2 percent, with the drop observed mainly in stage 2 and 3 portfolios, indicating an improvement in credit quality.

• ROA (1.3 percent in 2022) increased by 0.2 percent compared to the prior year, owing to the rise in profitability being higher than the asset growth.

• Cost-to-income ratios reduced compared to 2021 (40.9 percent to 39.9 percent), reflecting the continued focus on cost reductions and operating efficiency initiatives.

• Share prices overall remained stable year on year with a marginal increase of 0.7 percent compared to the previous year. The report also highlighted a 1.2-percent decrease in return on equity (ROE), compared to 2021, as equity growth brushed past profitability increases.

Dividend payout ratio in the region also witnessed a near-identical drop of about 1.3 percent as GCC banks looked to safeguard their earnings to further bolster equity positions and support future growth.

According to the report, GCC banks continued extending adequate coverage for their performing loan book as stage 1 net provision charges grew six-fold compared to 2021. Furthermore, while well above the minimum regulatory requirements across all GCC countries, the average capital adequacy ratio dipped marginally (0.3 percent) to reach 18.6 percent.

The GCC listed banks’ results anticipates banking sector in the region to continue its pursuit of building on its strong foundation, aided by a robust economic environment. As banks in the region aim to look past the COVID-19 crisis, it is expected that accelerated innovation plans, technology focus and continued government investment will witness further growth in the future.

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