The drop in oil prices and regional unrest have seen Arab banks struggle to maintain their stellar profit results of previous years, but overall their performances remain impressive by global standards.

National Commercial Bank

Despite a turbulent year characterised by low oil prices and increasing concerns about ongoing political and security instability in the region, The Banker’s Top 100 Arab Banks ranking for 2016 – which features year-end results for 2015 – shows that lenders in the Middle East and north Africa are still able to turn in a profit while expanding their core asset bases and improving their overall resilience. That being said, compared with the past few years, key markers in the region are noticeably down.

Tier 1 capital among Arab banks has continued to grow, albeit at a slower rate than in our 2015 ranking, with an aggregate growth rate of 8.64% among the 100 lenders versus 11.08% the year before bringing the total capital base to $282.8bn, up from $263.16bn. Aggregate balance sheets rose by 5.81% to $2499.5bn, up from $2388bn in the 2015 ranking, but with a marked slowdown in growth from 10.5%. In the 2014 ranking the figure was 12.2%.

Meanwhile, pre-tax profitability growth has slowed noticeably among the banks that made the list. The aggregate growth rate for the year ending December 31, 2015, was 4.71%, about one-third of the 13.48% achieved at year-end 2014, which was slightly up from 10.94% in 2013. This highlights the more challenging environment for banks in the region.

Some countries have fared far better than others. Egyptian banks have continued their strong showing in 2015, accounting for half of the top 10 banks by return on assets (ROA) and eight for return on capital (ROC), demonstrating the country’s emergence from a period of sectoral reforms and political uncertainty. Gulf banks, meanwhile, have maintained their dominance of the rankings.

Top 100 Arab banks – share of Tier 1 capital

At the other end of the scale, Moroccan banks in particular have struggled, posting a drop in pre-tax profits of 7.31%, as well as falls in asset and Tier 1 capital of 4.06% and 4.92%, respectively. Indeed, Morocco is the only country on the list to witness a fall in Tier 1 capital for 2015.

Strength of the Gulf

The top 18 banks on the list all come from Gulf Co-operation Council (GCC) countries, as do 24 out of the top 25. The only other bank making the top quarter is Arab Bank from Jordan, which, despite seeing Tier 1 capital decline by 1.99%, still had a capital base of $4.69bn.

In total, 20 of the 100 lenders on the list come from the United Arab Emirates, 12 are from Saudi Arabia, 11 from Bahrain and 10 from Qatar. Ten each come from Lebanon and Egypt.

The first 14 banks on the 2016 list have barely changed position from a year earlier, at most rising or dropping one or two places, highlighting the stability of the top lenders in the region. In fact, the first bank that has risen significantly in the ranking is Dubai Islamic Bank, which has jumped from 20th to 15th after posting Tier 1 capital growth of 30.32%, as well as a pre-tax profit of $1.05bn, which was up 36.61% year on year.

Dubai Islamic Bank also deserves a special mention since, despite its large size, it has still managed to record an asset growth rate of 20.99%, enough to earn it 10th place among the banks when it comes to asset growth, with total assets rising to $40.81bn.

An interesting side note is that none of the top-ranked banks in any of the countries have lost their respective number one spot this year, though Groupe Banque Populaire came within $23m of overtaking Attijariwafa Bank in Morocco, after the latter saw the bigger drop of the two in Tier 1 capital.

Big winners

Saudi Arabia-based National Commercial Bank has topped the list of The Banker's Top 100 Arab Banks ranking yet again, after recording a Tier 1 capital increase of 19.62% to raise its capital base to $14.69bn, as well as pre-tax profits of $2.44bn, up 4.04%, and an ROC of 16.60%, down from 19.09%.

Saudi Arabia also has the third placed lender on the list, Al Rajhi Bank, which cements the position it achieved in our 2015 ranking, after posting an 11.32% Tier 1 capital increase in 2015 to bring its capital base to $12.44bn.

Meanwhile, despite being second on the list overall, Qatar National Bank (QNB) remains the most lucrative bank in the Middle East, with pre-tax profits of $3.3bn, up from $3.07bn, marking a pre-tax profit growth rate of 7.32% for 2015. QNB has also seen a Tier 1 capital increase of 18.03% year on year, down slightly from 22.94%. The bank is placed fifth when it comes to cost-to-income ratio, with 20.06%, and remains the only bank from outside Saudi Arabia and the UAE to make the top 10 in Tier 1 capital.

Several banks have posted particularly impressive pre-tax profit figures. Two banks, both GCC members, saw pre-tax profit growth of more than 100% in 2015: Bank AlJazira from Saudi Arabia, which achieved an impressive 124.84% growth rate, with pre-tax profits of $343m, and Kuwait Finance House Bahrain, with a growth rate of 109.85%, which, due to the size of the lender, only meant pre-tax profits of $29m.

Kuwait Finance House Bahrain, along with National Bank of Oman, is the highest climber in the overall rankings, with the former jumping from 92nd to 72nd and the latter up from 74th to 57th. Meanwhile, there are five new entries, all to be found in the bottom 10 of the ranking: HSBC Bank Egypt, Bank of Beirut and the Arab Countries, Banque du Caire, Jordan Islamic Bank and Future Bank.

ROA and ROC by country

Saudi liquidity

While there have been concerns about liquidity pressures in the Saudi Arabian banking sector due to the impact of lower oil prices around the world, Saudi banks have maintained the strongest Tier 1 capital buffer in the region, with 29.43% of total Tier 1 capital across the 100 banks. The only other country to come close is the UAE, with 25.66% leaving Qatar a distant third with 12.16%. That said, none of the top 10 lenders on the list when it comes to Tier 1 capital growth come from Saudi Arabia.

AlJazira has posted the highest capital increase among Saudi banks of 20.31%, bringing its capital base to $2.02bn, followed by National Commercial Bank and then Saudi Hollandi Bank, which has increased its capital base by 16.21% to $3.13bn. In total, Saudi lenders saw an aggregate rise of 8.81% in Tier 1 capital to reach $83.23bn, against a region-wide average of 8.64% among those banks that made the list.

Saudi lenders also came top in total pre-tax profits, accounting for $11.67bn of the $44.3bn registered by the 100 banks on the list, with a growth rate of 5.17% compared with 4.71% in the region as a whole. The UAE followed close behind with $10.6bn. 

Back to life

It was a strong year for returns in the Middle East and north Africa region, highlighting the ability of Arab banks to put their assets to strong use. All 10 countries featured on the list had a positive aggregate ROC ratio, with a combined total ratio of 15.67%. Egypt was the standout with 45.64%, while only Bahrain had a ratio below 10% at 7.76%.

Egypt’s banking system has continued its re-emergence. Aggregate ROA among Egyptian banks that made the list is 2.62%, up from 2.31%, while aggregate ROC has grown from an already-impressive 38.07% to 45.64%. The country also saw asset growth of 6.29% and pre-tax profits of $5.29bn, up 21.55%. Meanwhile Tier 1 capital has grown at a steady but unremarkable 4.22% to reach $11.59bn.

Return on capital for top six Arab banks, 2005 to 2015

Five of the 10 top banks in the region for ROA come from Egypt, followed by the UAE’s four, with Future Bank from Bahrain being the only top 10 bank from outside those countries.

HSBC Bank Egypt has reported the highest ROA rate at 5.27%, followed by National Bank of Umm Al Qaiwain from the UAE with 4.15%, and AlexBank, also from Egypt, with 3.82%. The UAE’s Rakbank, which topped the list for ROA in the 2015 ranking, has dropped to fifth with 2.47%, down from 4.18%.

The top eight banks by ROC are all from Egypt, led by Banque du Caire (90.51%), HSBC Egypt (76.85%) and CIB Egypt (58.5%). Despite being 98th on the list overall, Banque du Caire has been surging over the past two years, with its rate up from 72.24%. These were by far the highest ROCs for both years, suggesting Banque du Caire knows how run its business and is a bank to watch.

The only two banks among the top 10 for ROC not from Egypt are Jordan Islamic Bank in ninth place with a rate of 26.39%, and Morocco’s Attijariwafa Bank in 10th, with a rate of 25.91%, barely changed from 2014’s rate of 25.93%.

Top 20 growth in Pre-tax Profits

Overall, when it comes to the pre-tax growth rate of banks that have experienced a ROC of more than 15% in 2015, eight of the top 20 lenders are from Egypt, with AlexBank and Banque Misr a respective second and third behind Saudi Arabia’s Bank AlJazira.

Taking a long-term view, the top six Arab banks by ROC for 2004 to 2014 were Saudi lenders Samba Financial Group, Al Rajhi Bank and National Commercial Bank, alongside Qatar National Bank, and UAE banks Emirates NBD and National Bank of Abu Dhabi. It is no coincidence that these are also the top six Arab banks in this year’s list, highlighting the long-term stability of each, as well as the strength of Gulf region banks.

Morocco stutters on

After being the standout performer in 2013 in Tier 1 capital growth, posting an increase of 18.55%, Moroccan banks have struggled ever since. The seven Moroccan banks on this year’s list had an aggregate Tier 1 capital fall of 4.92%, with capital down to $11.02bn.

All of the Moroccan banks on the list have seen their capital levels decline, with Groupe Banque Populaire, which recorded the highest capital increase in the country two years ago before declining 9.43% in last year’s rankings, seeing its capital drop a further 2.4%.

Attijariwafa Bank, Morocco’s largest lender and an institution part owned by King Mohammed VI’s investment company, Société Nationale d’Investissement, has experienced a drop of 7.18% in Tier 1 capital, following a 5.43% increase in our 2015 ranking, which was the second largest drop in the country after Credit du Maroc, the local subsidiary of French lender Groupe Crédit Agricole, which lost 11.83%.

Morocco is also one of only two countries in the ranking to see assets shrink year on year. Assets for 2015 fell by 4.06%, while in Kuwait there was a modest drop of 0.23%.

Moroccan banks have been struggling in the face of weak performances by the country’s small and medium-sized enterprise sector, as well as agricultural challenges. With a difficult home environment, and as part of a push to become a major financial hub for north Africa, Morocco’s largest lenders have been looking abroad for opportunities, with strategic investments in 2015 including Attijariwafa Bank’s purchase of a 39% stake in Côte d’Ivoire lender Société Ivoirienne de Banque for $56m and Groupe Banque Populaire’s acquisition of a 53% stake in BIA Niger.

Across the rest of the region, Oman has posted the most impressive asset growth rate with 16.94%, while Qatar and the UAE have seen strong growth of 11.32% and 10.56%, respectively, compared with an aggregate growth rate of 5.81% across the 100 banks.

Leaner times for Bahrain

Bahrain’s banks have outperformed the regional average in Tier 1 capital growth, posting a 10.85% growth rate compared with 8.64% overall, with Tier 1 capital of $17.64bn and total assets rising to $142.1bn.

However, despite having 11 banks on the list, Bahrain's banks as a whole have struggled with ROA, posting an aggregate figure of just 0.96%, compared with 1.77% across the 100 for 2015. Likewise, the aggregate ROC for Bahraini banks was just 7.76% for 2015, against a regional average of 15.67%.

Bahrain’s banking sector has also struggled when it comes to pre-tax profits, reporting a decline of 25.7%. The only other countries to experience negative aggregate pre-tax growth rates are Jordan and Morocco, with rates of -7.58% and -7.31%, respectively. This is despite Bahrain having some of the strongest performing banks in the region.

Bahrain’s GFH Financial Group has been by far the standout performer when it comes to asset growth, at 102.88% year on year, with assets rising to $2.65bn. Only three other banks have posted growth rates of above 30%: Noor Bank from the UAE (36.02%), Qatar Islamic Bank (32.18%) and Egypt’s Afreximbank (30.81%).

Share of assets and pre-tax profits

Meanwhile, in Tier 1 capital, Kuwait Finance House Bahrain has achieved an impressive 73.05% jump in its Tier 1 capital, to hit $942m, a figure almost 30 percentage points higher than any other bank on the list. National Bank of Oman sits in second place with an increase of 45.02% to reach $1.26bn, with BankDhofar third with a rise of 43.08% to $1.171bn.

However, for the Bahraini banking sector in general these gains have been offset by less-than-stellar results from other banks that made the list, including Bank ABC. The largest lender in Bahrain has seen Tier 1 capital decrease by 2.26% year on year to $4.07bn, total assets drop 3.95% to $28.2bn, and pre-tax profits fall 38.18% to $238m, the second largest drop in the region behind Crédit du Maroc, which experienced a fall of 68.15%.

Keeping costs down

For the larger national lenders on the list, cost-to-income ratios (CIR) have remained steady. The top-ranked lender, Saudi Arabia’s National Commerce Bank, has seen little change in CIR, dropping slightly from 34.69% to 32.99%. CIR at QNB has risen slightly from 19.16% to 20.06% in 2015, while Kuwait’s National Bank has seen its CIR drop from 32.54% to 32.24%.

Elsewhere, CIB Egypt has the lowest CIR in the region at 15.38%, meaning the bank spent just $15.38 to generate $100 of income. The bank saw overall pre-tax profits of $839m in 2015. Three other banks have recorded a CIR of below 20%: Afreximbank from Egypt with 18.11%, Future Bank from Bahrain with 18.16%, and FGB from the UAE at 19.33%.

At the other end of the scale, Bahrain’s First Energy Bank has a startling CIR of 370.81%, which, coupled with its Tier 1 capital dropping 0.45% to $710m, its assets being down 22.75% to $1.05bn and a pre-tax loss of $375m, tell the tale of a terrible year for the bank. The bank’s ROA was -35.73%, hands down the lowest in the region. This was a major change from our 2015 ranking, when the lender had the lowest CIR in the region, spending just $17.46 to generate $100 of income. In May 2016, First Energy Bank appointed industry veteran Khaleefa Butti Omair as its new chairman, after previous chairman Khadem al-Qubaisi stepped down.

The only other bank to have a CIR of above 70% is 78th placed GFH Financial Group. However, despite having a high CIR, the bank has also seen its overall assets grow 102.88%, though with pre-tax profits down 29.41% to just $12m.

While many banks in the Middle East and north Africa have continued to post strong results, it is clear that oil price pressures coupled with low interest rate environments and less cash sloshing around the banking system have had an impact on the profitability of banks in the region. For the moment at least, banks may have to get used to operating in environments where results are not so eye-catching year after year.

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