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An overview of the key findings in this year’s Top 100 Arab Banks ranking.

The Arab world was hit particularly hard by the Covid-19 pandemic in 2020, with a slump in oil receipts compounding the impact of lockdowns and restrictions on businesses. The Banker’s Top 100 Arab Banks ranking for 2021 portrays an industry beset by slower asset growth and a steeper drop in profitability than elsewhere.

The combined asset bases of this year’s top 100 Arab lenders grew by 9.3%, compared with 12.4% in last year’s rankings, with Tier 1 capital growth falling from 12.0% to 7.4%.

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Fewer than one in five of 2021’s Top 100 Arab Banks posted a rise in pre-tax profitability, compared with three-quarters of lenders in last year’s ranking. On an aggregate basis, this year’s ranking saw a 29.2% fall in annual profits, compared with a 19.2% aggregate drop for global lenders in The Banker’s Top 1000 World Banks ranking.

In spite of the challenges of the past year, Arab lenders remain profitable compared with their international counterparts. While the return on assets (ROA) for this year’s ranking plunged from 1.54% to 0.92% over the course of 2020, this remains significantly healthier than the average of 0.51% for the Top 1000 ranking as a whole, with lenders in Saudi Arabia, Egypt and Qatar delivering particularly strong returns during the year.

The overall growth story of Arab lenders remains firmly intact, with three-quarters of this year’s top 100 Arab lenders posting rises in Tier 1 capital and assets, amid strong growth in Saudi Arabia and Egypt in particular. As vaccine rollouts gather pace and with oil prices recovering to pre-crisis levels by mid-2021, banks are set to bounce back strongly in 2021/2022.

QNB clings to pole position

Qatar National Bank (QNB) retains the number one spot in The Banker’s Top 100 Arab Banks ranking for a third consecutive year, even amid challenging conditions. The lender’s Tier 1 capital strengthened by 3.3% in 2020, compared with 10.4% the previous year, while pre-tax profits decreased by 15.7%.

As with the majority of lenders at the top of this year’s rankings, such impacts are set to be short lived. QNB has already returned to profit in 2021, with second quarter results coming in ahead of analyst forecasts on the back of a healthy rise in fees and advances. The bank’s international expansion continues apace, with the opening of a branch in Hong Kong in July — supplementing similar branches in Shanghai and Singapore — in a bid to tap into further business in mainland China.

Despite its position at the top of the Arab world’s rankings, QNB ranks fourth out of five in Qatar’s performance rankings for the second year in a row, dragged down by its scores for leverage and soundness. Last year’s best Qatari performer, Commercial Bank, sinks to fifth position, let down by its scores for profitability, asset quality and return on risk. Qatar Islamic Bank tops this year’s Qatari performance rankings, thanks to a strong showing in areas including profitability and operational efficiency.

In spite of QNB’s impressive resilience at the top of this year’s main rankings, the continued stellar performance of Saudi lenders, led by National Commercial Bank (re-branded this year as Saudi National Bank), is the dominant theme of this year’s top 10. Even as the collapse in oil revenues choked off a major source of government revenues in the Arab world’s largest economy in the early part of the pandemic, Saudi Arabia’s state-sponsored housing boom continues apace, providing rich sustenance for the country’s leading lenders. Rising mortgage income shielded Saudi lenders from the worst effects of the coronavirus crisis, with profits down by less than the regional average.

National Commercial Bank (NCB) led the way. The bank’s Tier 1 capital base increased by 16.7% in 2020 — more than any other lender in this year’s top 10 — thanks to a 17.8% rise in customer deposits and a 23% rise in its loan book. This saw NCB leapfrog the UAE’s First Abu Dhabi Bank (FAB) and Emirates NBD to gain second place in this year’s Arab banks ranking.

However, such a rise is just the beginning: NCB’s landmark merger with Samba Financial Group — which itself rose from seventh to sixth place in this year’s rankings — creates in Saudi National Bank a new regional megabank that is set to usurp QNB in next year’s rankings, even though QNB and FAB remain larger in terms of assets.

In addition to its strong performance in the main rankings, NCB ranks first position in this year’s performance rankings of leading Saudi banks, up from third place in last year’s rankings. NCB ranked in the top two positions in six of the eight performance categories, coming first for operational efficiency and leverage. Samba ranked second in terms of performance, just ahead of last year’s top performer Al Rajhi, implying that the newly merged Saudi National Bank will feature prominently in next year’s performance rankings.

Samba’s rise to sixth place in the main ranking comes at the expense of Abu Dhabi Commercial Bank (ADCB) — the only lender in this year’s top 10 to experience a fall in Tier 1 capital. Fellow Saudi lender Riyad Bank also improved its standing, rising from ninth to eighth position thanks to a 9.3% rise in Tier 1 capital.

ADCB and other UAE lenders held firm in 2020 in the midst of declining profitability, posting solid (if unspectacular) growth when compared with their Saudi counterparts. Of the 10 UAE-based lenders in the top half of this year’s Top 100, just two — Dubai Islamic Bank (DIB) and Commercial Bank Dubai — posted double-digit increases in Tier 1 capital, with Mashreqbank also posting a slight dip in Tier 1 capital.

National Commercial Bank’s Tier 1 capital base increased by 16.7% in 2020 — more than any other lender in this year’s top 10

DIB’s 33.2% rise in Tier 1 capital came as the country’s largest Islamic lender completed the acquisition of Noor Bank in January 2020, the latest in a series of consolidation deals in the UAE in the past five years, helping it rise from one spot to 11th.

Abu Dhabi’s FAB remains the country’s largest lender, just ahead of Dubai-based Emirates NBD in the main rankings. After a lacklustre year, both banks have reported improved earnings for 2021, thanks to improved fees and commissions income, and lower impairment charges.

FAB replaces Emirates NBD as the top lender in this year’s UAE performance rankings, thanks to top scores in five of the eight performance metrics, including asset quality, return on risk and profitability. DIB comes in second in the performance rankings for the country, with top scores for growth and leverage.

The past year was a particularly difficult year for Kuwait’s economy, which shrank by 8.1%. This was the worst drop by any state in the Gulf Co-operation Council, with just Lebanon, Iraq and Libya experiencing a tighter contraction in the Arab world. Kuwait’s banking sector experienced the lowest growth in Tier 1 capital and assets of any Arab state represented in this year’s Top 100. National Bank of Kuwait (NBK) bucked the trend, rising one place to ninth, thanks to a 3.8% rise in its Tier 1 capital position for the year.

However NBK, which topped last year’s inaugural Kuwait performance rankings, was beaten into second place this year by Commercial Bank of Kuwait (CBK), the only Kuwaiti lender in this year’s rankings to post an increase in pre-tax profits. CBK, which saw its Tier 1 capital position shrink by 2.4%, tops the performance rankings thanks to leading scores for operational efficiency, soundness and leverage.

While Saudi lenders posted the best gains in this year’s top 10, it is their Egyptian counterparts who once again are the best gainers in the Top 100 Arab Banks ranking as a whole. The Arab world’s most populous country has continued to post spectacular economic growth, even as concerns rise about the crowding out of the private sector by the ruling military. As of mid-August, the country was in fifth place in The Economist’s global normalcy index of countries that are returning to normal in the midst of the pandemic, with Saudi Arabia, the next-best Arab state, in 39th position.

The country’s largest lender, National Bank of Egypt, jumps two places to 14th in the main rankings for 2021, thanks to a 28.1% rise in Tier 1 capital for the past year.

Egyptian lenders make up seven of the 10 fastest-growing lenders in the Arab world for 2021. Banque Misr — which climbed 14 places to 19th in this year’s rankings — leads the way with an 84.2% growth in Tier 1 capital. Housing & Development Bank, which saw its Tier 1 capital rise by 34.7%, rose from 99th in last year’s rankings to 89th this year.

On the performance front, Commercial International Bank (CIB) — Egypt’s largest private lender — once again tops the country’s performance rankings, coming in narrowly ahead of Banque Misr. In spite of low scores for growth and asset quality, CIB registered the highest score for five of the eight performance metrics measured, with clear leads in leverage, soundness and operational efficiency.

Profitability plummets

Of the Arab world’s largest lenders, Saudi Arabia’s Al Rajhi — unchanged at number five in the main rankings — also remains the best-performing lender in the top six Arab banks by return on capital (ROC) in the 2021 rankings, even as all six lenders saw their positions slip from last year.

Al Rajhi’s ROC fell from 19.8% to 18.2%; however, this was comfortably ahead of NCB, who took second place with 14.1%. Emirates NBD, which ranked second in the 2020 rankings, suffered the largest fall, from 19.5% to 9%, on the back of a 50% fall in pre-tax profits for 2020.

Across the spectrum, there was little escape from impact of the pandemic and lower oil prices on Arab lenders’ bottom lines in 2020. Outside of Lebanon, whose economic crisis has been described by the World Bank as one of the worst suffered by any country in the past 150 years, Bahrain’s lenders fared the worst on aggregate, following improved aggregate profitability in last year’s rankings. The pandemic saw the country return to earth with a bump, with ROA declining from 1.2% to 0.3%, and ROC falling from 9.8% to 2.6%.

Of the big five markets of the UAE, Saudi Arabia, Qatar, Kuwait and Egypt — which together account for 80% of banking assets in the Arab world — the UAE and Kuwait were the worst affected, with ROA and ROC halving for both states on an aggregate basis.

Dubai-based giants Emirates NBD and DIB were hit particularly hard, with respective drops of 50.1% and 37.7% in pre-tax profits, sending profitability metrics plummeting. Kuwait’s big four — accounting for 80% of the country’s asset base — each posted falls in pre-tax profits of more than 30%.

Once again, Egyptian lenders fared best in the region, experiencing an aggregate pre-tax profit drop of just 2.5% in 2020, the lowest of any country in the region. ROC on aggregate stood at 14.4%, higher than any market in the region, while aggregate ROA stood at 1.3%, the joint-highest aggregate for any country with more than five lenders, alongside Saudi Arabia. Egyptian banks dominate this year’s top banks by ROA and ROC lists, with Housing & Development Bank and HSBC Bank Egypt occupying the top positions in both tables.

It comes as little surprise that Egyptian lenders also dominate this year’s list of top 10 growth in pre-tax profits for banks with a ROC of above 15%, contributing seven lenders between them. The Egyptian network of struggling Lebanese lender Bank Audi is the clear winner, with a 12.9% rise in pre-tax profits, even as its ROC fell from 22.0% to 18.8% in last year’s rankings.

The profitability of Bank Audi’s Egyptian operations, together with the woes of its parent, has made the network the subject of several acquisition approaches over the years.

The UAE’s FAB announced an agreement to acquire Bank Audi Egypt in January 2021, with a full integration expected to be completed by 2022.

Alongside Bank Audi Egypt, Saudi’s Al Rajhi and Housing & Development Bank of Egypt are the only other two lenders in the list to record profit increases for 2021 — of 4.3% and 0.05% respectively — once again shining a light on the pressures on lenders during the year.

Such pressures saw the convergence between asset growth and profitability across the Arab world narrow significantly. While six lenders from 2020’s top 20 growth list also featured in the top 10 Arab banks by asset growth, just one lender — Saudi Arabia’s Al Rajhi — features on both lists in 2021.

The Saudi lender’s asset base increased by 22.1% to 125,020 in 2020, putting it ninth in the asset growth charts. National Bank of Egypt is the only other bank in the top 10 by asset growth with a base of more than 100,000, increasing by 29.4% to a base of 125,447. National Bank of Bahrain, the country’s sixth-largest lender, tops the asset growth table, with a 36.5% increase, followed by Egypt’s Afreximbank (33.7%) and Oman Arab Bank (32.2%).

However, the divergence between asset growth and profit growth is likely to go into reverse in 2021 and 2022, as banks’ profitability recovers as provisions start to be reduced. With the International Monetary Fund reporting a return to growth for all Arab economies in 2021, the worst appears to be over for Arab lenders, with the coming years offering the prospect of improved profitability to accompany healthy asset growth once again.


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