Qatari banks have the highest coverage against stage 3 bad loans in the GCC

Doha: Qatari banks posted the highest coverage against stage 3 bad loans at 99.2% in the Gulf Cooperation Council (GCC) in the second quarter (Q2) of the current year, according to a recent report by Kamco Invest.

The overall provision coverage that GCC banks have taken against stage 3 bad debt stood at 71.7% at the end of the second quarter of 2022. Provision coverage has increased steadily over the past three quarters , where it stood at 69.8% in Q1-2022 and 67.1% at the end of Q4-2021. “Qatari banks posted the highest coverage against stage 3 NPLs in the GCC during the quarter at 99.2%, higher than Q1-2022 coverage of 95.9%. Bahraini banks were next at 70.5% during Q2-2022, while the ratio for the rest of the region remained below the 70% mark,” the report notes.

“The average share of NPLs (stage 3 loans) in GCC banks’ loan portfolios decreased slightly to 3.4% in Q2-2022 from 3.6% at the end of Q1-2022 and 4.1% at the end of Q1-2021. Non-performing loans for UAE banks remained the highest in the GCC, at 5.5% of total gross loans at the end of the second quarter of the year, 30 basis points below the Q1 share -2022 and significantly below the 6% level of Q2-2021.

On the other hand, Kuwaiti banks reported the lowest NPLs on their books at 1.6% at the end of Q1-2022, in line with Q1-2022, when they were down sharply from to 2.7% last year. Stage 2 provision coverage at the GCC level stood at 8.4% in Q2-2022, down slightly from 8.5% in Q1-2022, with Omani banks showing the highest coverage of 20.7% while Saudi banks reported the smallest coverage so far at 5.8. percent.

The report indicates that net profits of the GCC banking sector hit a new record high of $11.1 billion in the second quarter of 2022, registering quarterly (qr) growth of 1.9% and annual (yy) growth. 31.9%. The increase in aggregate earnings was primarily driven by higher segment revenues coupled with a slight decrease in provisions during the quarter. The growth came after the aggregates of all GCC countries registered an increase, except for Kuwaiti banks which recorded a quarterly decline of 0.6%, mainly due to higher operating expenses.

“Omani banks recorded the largest percentage increase in net profit during the quarter at 13.9%, followed by Qatari and Bahraini banks with growth of 3.6% and 3.2%. Saudi Arabia came in at 2.7% while UAE banks posted flat net profits in the quarter.In terms of year-on-year growth, aggregates for almost all GCC countries showed strong growth. double-digit growth in Q2-2022,” he added.

GCC banks’ total banking revenue recorded healthy quarterly growth of 4.8% during Q2-2022 to $24.9 billion from $23.7 billion during Q1-2022. The quarterly increase was led by broad-based revenue improvement across GCC in the quarter. The increase was mainly driven by higher interest rates across the GCC after central banks in the region raised policy rates following the US Fed’s rate hikes.

“As a result, net interest income increased 9.6% to $17.1 billion. However, this increase was partially offset by a quarterly decline in non-interest revenue which reached $7.7 billion in Q2-2022, registering a quarterly decline of 4.5%. The decline in non-interest income reflects the quarterly decline in global and regional financial markets during the quarter which affected the balance sheet of investment banks,” the report said.

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