While Gulf banks enjoy strong results, banks in non-oil countries have seen a drop in their profits. Stephen Timewell reports.
Banks in the Gulf, the dominant force in Arab banking, are going from
strength to strength, largely on the back of the expanding demand for
retail financing. Despite political turmoil in the region and a
sluggish world economy, financial sector activity remains robust with
the strong profitability achieved in 2002 growing even stronger this
year.
Saudi Arabia’s 10 banks, which account for 26.4% of the total Tier I
capital of the Top 100, produced strong results in 2002. Overall
pre-tax profits expanded by 6.1% to $2.9bn, amounting to a healthy
average return on equity of 21% across the sector. This year, profit
growth has improved with interim results up an average 14.9% over 2002
and Al-Rajhi and Arab National Bank showing 49.6% and 24.8% growth
respectively.
Retail diversification
Commenting on the benefits of retail for Gulf banks, Standard &
Poor’s CreditWeek said: “Retail banking has been a powerful means of
revenue diversification out of the more risky commercial banking area,
and it has also constituted a major source of profitability, given the
limited amount of risks it carries.” It added: “The most impressive
growth was witnessed in Saudi Arabia, where outstanding retail loans
(consumer, personal, house, car and credit card loans) increased to a
total of $14.6bn in 2002, from $2.5bn in 1997.”
This six-fold increase in Saudi Arabia comes as sovereigns and
corporates in the region have limited their appetites for bank
financing. For the two biggest Top 100 banks, National Commercial Bank
of Saudi Arabia and Saudi American Bank, retail constitutes 65.2% and
58.4% of profits respectively. While elsewhere in the Gulf retail
contributes an average of 40% of banks’ reported profits, S&P
believes the medium-term expectations for retail are favourable and the
growth in Islamic products adds another positive dimension.
Banks outside the Gulf, 46 of which are in the Top 100, have fared less
well. Ten of the 14 Egyptian banks listed showed reduced profits in
2002. Profits in other key banking markets, such as Lebanon and
Morocco, were largely down, apart from Banque Audi and Credit du Maroc.
Prospects in non-oil economies look weak and the outlook for mergers
remains static. Lebanon is ripe for banking consolidation and expansion
into Syria; three licences have been granted to Lebanese banks in Syria
but progress is gradual at best.
Stable structure
The structure of Arab banking, the Gulf included, has remained
remarkably stable. Mergers have been virtually non-existent and
although the UAE, which has 47 local and foreign banks and 17 banks in
the Top 100, has long been regarded as over-banked, the prospect of
consolidation among local players is limited. Family and local ties run
deep. As a result, the structure of the Top 100 looks little different
from that of previous years.
Nevertheless, the total Tier I capital of the Top 100 rose by 6.3% in
2002 to reach $51bn and aggregate total assets also increased to
$612.7bn. The 54 Gulf banks in this listing account for 71.2% of
aggregate Tier I capital and $5.7bn in profits, and, given the growth
in retail and buoyant banking outlook, the figures for 2003 are set to
rise even higher.