Top 100 Arab Banks 2015: another strong year

Banks in the Middle East and north Africa may have been buffeted by the region’s ever-growing political and security challenges, but The Banker’s Top 100 Arab Banks rankings for 2015 show another year of robust performances.

The results for Arab lenders are stellar across all measures. Local lenders have worked particularly hard to improve their resilience, growing aggregate Tier 1 capital by 11.08% and bringing the total capital base to $263.16bn. Banks have expanded their balance sheets by 10.5%, slightly less than the 12.2% the year before, bringing the aggregate holdings of banks in the rankings to $2388bn.

Profitability has increased by 13.48%, a slight improvement on the 10.94% recorded a year earlier. Interestingly, while growth in capital and assets is spread evenly across the region, this is not the case with profits. 

Banks in the United Arab Emirates and Egypt have run ahead of their peers with profit increases of 23.28% and 24.7%, respectively. 

Egypt emerges

The stand-out story comes from Egypt, where lenders have emerged in good shape after a long period of sectoral reforms and political uncertainty. Egyptian banks have grown their assets more than any other country in the region, with overall balance sheet expansion reaching 18.32% as public and private borrowing recover. This trend looks set to continue as major government-backed infrastructure projects are pending for the banks and banking sector penetration remains low – only 10% of a population of 89 million hold bank accounts.

Egyptian banks also dominate the ranking in terms of returns; the aggregate return on assets (ROA) is 2.31%, while the aggregate return on capital (ROC) is an impressive 38.07%.

There are strong individual performances as well. Egyptian banks have the largest presence in the returns rankings. CIB Egypt is the second highest scorer in the rankings by ROA with 3.85%, right on the heels of the UAE’s Rakbank, with a 4.18% return. CIB Egypt also has the second highest ROC in the region at 50.98%, this time following in the wake of another Egyptian institution, Banque du Caire, which boasts a 72.24% return. QNB Alahli Bank, another Egyptian institution, deserves special mention, with the third highest ROA and fourth highest ROC.

While Egyptian banks make waves, the quiet success story in the region comes from Bahrain. Although the country’s banks win no accolades for their aggregate performance – growth and profitability are solid but not exceptional – its lenders still sit at the top in several categories.

Notably, United Gulf Bank from Bahrain has made an entry into this year’s ranking with a 57.90% capital increase, more than any other institution. The bank also showcases its ambition by notching up the highest balance sheet increase of 120.71%, again earning it the first position for the largest increase. Al Salam Bank and Gulf Finance House have also grown their assets by an impressive 79.67% and 43.76%, respectively. At Gulf Finance House, this is accompanied by a 171.8% increase in the profits, the highest in the ranking.

Qatar – high achiever

All too often Qatar remains in the shadow of its two larger neighbours, Saudi Arabia and UAE. However, banks from this small country of 2 million people have performed very well in this year’s rankings.

Indeed, the only bank to break the Saudi Arabia and UAE duopoly on the top 10 positions in the rankings by Tier 1 capital is Qatar National Bank (QNB), which climbs four spots to second position thanks to a 22.94% capital expansion.

The bank is the most lucrative operation in the Middle East, posting a pre-tax profit of $3.07bn. It also has the 10th highest ROC in the ranking, unusual for a bank of this size. At the same time it is one of the most cost-efficient lenders, with a cost-to-income ratio of 19.16% at the end of 2014. Last year, it continued expanding beyond its relatively small domestic market by becoming the majority stakeholder in Ecobank, a pan-African lender and Togo’s largest banking conglomerate.

While other Qatar lenders have not made it into the top 10, they still manage to outshine many of their peers. They have earned an aggregate ROA of 2.07% and an aggregate ROC of 19.67%, making them second only to Egypt. In particular, Masraf Al Rayan has put in a notable performance as it posted a 32.37% Tier 1 capital increase while retaining profitability, earning a 2.52% ROA, the ninth highest in the ranking.

Past rankings have shown that UAE banks are able to put their assets to good use and this year is no different. Six of the 10 highest ROAs in the ranking belong to UAE lenders, with Rakbank boasting a return of 4.18%, the highest in the ranking. Moreover, the UAE manages to stay competitive with an aggregate pre-tax profit growth figure of 23.28%, second only to Egypt. Additionally, the UAE has managed to add one more bank to its presence in the top 10; Abu Dhabi Commercial Bank has increased its capital by 6.66%, just enough to elevate it two positions to ninth spot.

Saudi Arabia’s National Commercial Bank continues to reside in the first position unchallenged, with $12.28bn in Tier 1 capital. Another Saudi lender, Al Rajhi Bank, follows in third position, hopping two spots thanks to a 34.17% capital expansion. Saudi Arabia’s banking sector remains the top player in the region, holding 23.44% of the total assets in the ranking and 26.08% of total capital, more than any other country. It may not boast the highest returns, but with aggregate capital growth of 17.05% it manages to stay competitive with both Qatar and Egypt.

Morocco shrinks

In last year’s ranking, Moroccan lenders distinguished themselves with the highest increase in Tier 1 capital, but they could not repeat this feat this year. In fact, the aggregate capital of Moroccan banks has shrunk by 2.31%.

Groupe Banques Populaire, which posted the highest capital increase in the country in the 2014 ranking, has declined 9.43% this year. The bank is trying to pull itself out of this decline by expanding its business, acquiring a 53% stake in BIA Niger and planning to buy out minority stakeholders by the end of the year. The bank already has a pan-African presence and the BIA Niger acquisition will make it the largest player in the Niger market due to its ownership of Banque Atlantique Niger. 

Moroccan subsidiaries of French lenders have also seen poor performances. Société Générale Morocco, Credit du Maroc, Groupe Banques Populaire and Banque Marocaine pour le Commerce et l’Industrie all posted Tier 1 capital contractions in excess of 6%.

Domestically owned institutions, however, have defied this trend. Attijariwafa Bank, which is the largest lender in the country and is also partly owned by the King Mohammed VI’s investment company, Société Nationale d’Investissement, has posted a modest 5.43% capital increase. Another domestic institution, BMCE Bank Group, has also strengthened its capital base with 1.12% growth.

Unfortunately, even these domestic banks could not resist a decrease in assets; the aggregate drop for Moroccan lenders in the ranking stands at 5.93%, with every single bank posting a decrease.

Low costs

While overall performance was very strong in last year’s ranking, it came at a price as cost-to-income ratios (CIR) rose for several of the top performers. Happily for lenders in the region, this trend has reversed in the current ranking.

In Saudi Arabia, National Commerce Bank’s CIR drops precipitously to 34.69% after rising to 44.65% the year before. Kuwait’s National Bank also saw an increase in the cost of running its business in last year’s ranking, but its CIR has dropped from 33.07% to 32.54% in this year’s ranking. Kuwait Finance House follows the same pattern. After a hike in costs the year before to 40.72%, its CIR falls slightly to 39.96%.

This is also the case with Qatari lenders, who generally run efficient operations to begin with. CIR at QNB drops to 19.16% in this year’s ranking, after rising to 20.89% the year before. At the Commercial Bank of Qatar, costs are down a little over one percentage point to 33.25%.

For the most part these drops do not make up for the large increases that took place last year – on average costs rose by more than five percentage points, while the recent drops are typically in the vicinity of one percentage point. But they show that the rise in costs has stopped at least for now.

Gulf lenders are still among the most cost-efficient institutions in the region and therefore worldwide. The honour for the lowest CIR belongs to the First Energy Bank in Bahrain, which spends only $17.46 in order to generate $100 of income. Other banks notable for their cost efficiency are two large lenders, QNB from Qatar and FGB from the UAE, which rank fourth and sixth by CIR, respectively.

In addition to Gulf banks, Egypt’s Afreximbank and CIB Egypt also place as leanest operations among Arab countries. At Afreximbank, $100 of revenue is generated with only $18.07 and at CIB Egypt the ratio is only 20.03%. In general, Afreximbank had a very good year with a 30.07% capital expansion, the largest in the country and ninth largest in the region. The balance sheet at the bank has also grown, this time by 25.12%, the seventh largest increase in the region.

Home advantage

Another unique feature of the banking landscape in the Arab world is the almost universal absence of foreign subsidiaries. This is only natural in the developed markets – in the Gulf, the foreign presence hovers at about 5%. But while there is larger foreign presence in Morocco and Oman, where foreigners claim about 16% of the total assets, it could unquestionably be stronger given the growth potential in the region. Moreover, foreign operations do not seem to be able to claim as large a share of profits; in Morocco, foreign-owned subsidiaries collect only 10.87% of all pre-tax profits and in Oman this figure is 10.48%.

In fact, it has been a lacklustre year for European lenders in the Middle East and north Africa. As described earlier, French lenders in Morocco have seen their balance sheets and capital contract. The only European bank in Egypt in the ranking has also posted a decrease in Tier 1 capital; Alexbank, which is owned by Italy’s Intesa Sanpaolo, registers a capital drop of 1.55%. HSBC is the only European institution to see its subsidiaries in the Arab region grow. HSBC Bank UAE posts a 7.76% Tier 1 capital growth, while HSBC Bank Oman shows an increase of 1.46%. Still, these increases remain below the average capital growth for both UAE and Oman. Moreover, HSBC’s share in these markets remains small, as the bank captures 6.01% of the UAE’s total assets and 9.47% of Oman’s.

Subsidiaries owned by other Arab banks fare considerably better. The Oman operation of Bahrain’s Ahli Bank sees an impressive Tier 1 capital growth of 14.7%, the largest in the country. Other successful Arab subsidiaries include the Qatar-based QNB Alahli Bank in Egypt, which ranks fourth by ROC and third by ROA.

The road ahead

Gulf banks have so far successfully fended off oil price pressures, but their exposure to the public sector is likely to affect them in the long term unless they adjust their business models. Oil price pressures will have the most immediate effect on pre-tax profits, although the low interest rate environment has already squeezed gains from the lending business.

Fortunately, the sheer size of the safety cushions that Gulf banks built up during the years of prosperity makes it likely that some time will pass before they start to feel the pinch in a serious way.

In the Levant, the conflict in Syria dominates the regional outlook. Jordan’s banks continue to be troubled by the regional instability, although the situation appears more stable than last year. While Jordan Kuwait Bank lost nearly 21% of its capital in last year’s ranking, this year it has posted a modest increase of 4.35%, the largest in the country. Jordan’s largest bank, Arab Bank, also sees its capital budge forward by 0.99% and its balance sheet expand by 3.77%.

Banks in Lebanon are also performing well, considering their proximity to the conflict. All of the country’s banks in the ranking posted a Tier 1 capital increase, with Société Générale de Banque Liban earning the seventh spot for highest increase at 32.79%. The country’s largest lender, Bank Audi, did not stay far behind, posting a capital increase of 21.53%, along with a 15.94% balance sheet expansion.

However, challenges remain. According to an International Monetary Fund report from May, economic growth in Lebanon has slowed down from an average of 7% in recent years to below 2%. Major economic sectors have shrunk and, as in the Gulf, Lebanese banks have significant public debt exposure, which has prompted rating agencies to reduce some banks’ ratings.

The Banker's Top Arab banks ranking, 2015 originally appeared in the October 2015 issue of the magazine. The full results of the ranking are available on The Banker Database. Find out more about the database, register for a free trial or subscribe today.