GCC banking sector NIM declines on low interest rates

Aggregate net interest margins (NIM) for the GCC banking sector continued to slide during the third quarter of 2020 (Q3-2020) reaching one of the lowest recorded quarterly levels at 2.98%, a report said.

The decline was led by low interest rates in the region and globally coupled with a consistent growth in net loans for the GCC banking sector, said the “GCC Banking Sector Report Q3-2020” published by Kamco Invest, a leading provider of in-depth expert analyses.

NIM declined in all the GCC markets during the quarter, barring Bahrain, where data is inconsistent as Q1-2020 financials have not been released by Bahraini banks. The blended cost of fund for the region stood at 1.9% at the end of Q3-2020 vs.2.5% in Q3-19, highlighting the rate cuts implemented during H1-2020.
 
Net profit for the sector bottomed in Q2-2020 and witnessed a strong revival in Q3-2020 growing by 56.5% q-o-q to $7.5 billion, although it continues to remain well below pre-Covid levels. The growth was mainly led by a fall in provisions during the quarter as well as savings on cost of fund. An increase in non-interest income also contributed to the growth in quarterly profits.

In terms of balance sheet, GCC banks continued to show resilient asset growth during Q3-2020 with a sequential growth of 2.2% to reach a new record high of $2.53 Trillion as compared to $2.47 Trillion at the end Q2-2020.

In terms of y-o-y growth, total assets increased by 9.9% during Q3-2020. Listed banks in UAE reported the biggest q-o-q increase in assets during Q3-2020 with a growth of 3.2% followed by banks in Saudi Arabia and Kuwait at 2.0% and 1.9%, respectively. Asset growth was positive across the board both in terms of q-o-q and y-o-y changes.

Asset growth during the quarter was once again supported mainly by Islamic banks that grew assets at 2.6% q-o-q during Q3-2020 as compared to 2.1% for conventional banks. In terms of y-o-y growth, Islamic banks once again showed higher asset growth of 13.8% as compared to 8.7% growth for conventional banks. Meanwhile, Q3-2020 growth in earning assets were slightly below the growth in total assets at 1.4% to reach $2.09 trillion at the end of Q3-2020 as compared to $2.06 trillion at the end of Q2-2020.

Banks reported continued growth in lending with both gross loans and net loans showing sequential growth during Q3-2020. Gross loans (excluding Kuwaiti banks) increased by 1.7% quarter-on-quarter (q-o-q) during Q3-2020 to reach $1.41 trillion. Net loans (including Kuwaiti banks) also increased by 1.7% q-o-q to reach $1.52 Trillion as of September 30, 2020. – TradeArabia News Service

Source: http://www.gdnonline.com/Details/898371/GCC-banking-sector-NIM-declines-on-low-interest-rates