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AfricaAugust 19 2022

The Banker's Top 100 Arab Banks 2022

SNB claims the Arab world’s top spot as post-Covid regional profitability rebounds. John Everington reports.
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The Banker's Top 100 Arab Banks 2022

After being hit by the double whammy of Covid-19 and a collapse in oil revenues in 2020, Arab banks turned a corner in 2021. The reopening of economies across the region, coupled with a rebound in the price of oil and a recovery in global trade, eased pressure on lenders’ balance sheets across the region.

The Banker’s Top 100 Arab Banks ranking for 2022 paints a picture of a sector in recovery, albeit one that has yet to reach several pre-pandemic markers. Tier 1 capital growth for the region’s largest lenders rose by 8.8% in 2021, compared to a rise of 7.4% in 2020, but has been held back by slower growth in the key markets of Egypt and the UAE. Assets grew by 11.1% in 2021 compared with 9.3% the previous year.

As with their peers elsewhere, Arab lenders were able to significantly reduce provisioning for bad loans on their 2021 accounts, prompting a resurgence in profitability. While fewer than one in five of last year’s Top 100 posted an increase in pre-tax profits, this time just nine lenders failed to record a rise.

Yet the recovery in profitability — which fell more steeply for Arab lenders in 2020 than their global peers — has thus far been shallower than for global lenders as a whole. Pre-tax profits for the largest 100 Arab banks rose by 44.2% in 2021, compared with 53.7% globally. Arab institutions — particularly those based in the oil-rich Gulf Co-operation Council — can draw some comfort from a rosier economic outlook in 2022 thanks to yet higher oil revenues, in stark contrast with the bearish sentiment elsewhere.

And while pre-tax profit growth remains below the global average, the aggregate return on assets (ROA) for the Top 100 Arab Banks remains significantly higher, at 1.2%, than the global figure of 0.75%, thanks in no small part to high figures for Egyptian lenders — six of whom recorded ROA ratios in excess of 2%.

Saudis at the summit

Banks in Saudi Arabia continue to be the engine of growth across the wider Arab region, with its lenders’ combined Tier 1 capital base higher than any other country in this year’s rankings. While higher oil prices helped economic growth in the country recover to 3.1% in 2021, up from a 4.1% contraction the previous year, it is the country’s booming mortgage market — fuelled by government initiatives to help Saudi nationals acquire property — that continues to boost banks’ balance sheets.

Banking assets in Saudi Arabia grew by 10% to SR3.3tn ($880bn) in 2021, marking the second-highest increase in the country’s history. And while analysts caution that growth rates may slow in the coming years, low home ownership rates suggest that there is plenty of growth still to come.

This year’s headline story for the world of Arab finance is the formal coronation of Saudi National Bank (SNB) — formed in early 2021 by the merger of the country’s largest lender National Commercial Bank and local rival Samba Financial Growth — as the region’s largest bank by Tier 1 capital. The lender’s Tier 1 base stood at $32.6bn at end-2021, putting it comfortably ahead of the region’s previous leader Qatar National Bank, whose base grew 2.6% to $26.4bn.

SNB, which ranks 67th in The Banker’s Top 1000 World Banks ranking for 2022, has had a stellar year thus far, reporting a near doubling of profits for the second quarter on the back of higher net special commission income and fees.

While SNB is likely to remain Saudi’s largest lender for some time to come — its asset base is nearly 50% higher than closest rival Al Rajhi Bank — the new megalender comes in second among the country’s largest five lenders when we apply our best-performing methodology. SNB is dragged down by lower scores for profitability, asset quality and return on risk, but comes in first for growth and liquidity.

HSBC subsidiary Saudi British Bank (SABB), which rises two places to eighth position in the Top 100 Arab Banks ranking for 2022, has topped Saudi Arabia’s performance rankings for the first time, with table-topping scores for profitability, return on risk and soundness.

Al Rajhi Bank comes in third in terms of overall performance, with high scores for operational efficiency, growth and profitability offset by lower marks for leverage and soundness. The bank recorded an impressive showing in this year’s main ranking, with a 20.8% rise in Tier 1 capital and a 33% jump in assets — the largest organic growth figures in this year’s top 10.

Al Rajhi also scores highest in terms of return on capital (ROC) out of the six largest Arab banks for the fourth consecutive year. Its ROC stood at 21.01% for the year, well ahead of the 15.16% recorded by First Abu Dhabi Bank in second position. Al Rajhi’s 39.2% increase in pre-tax profits was only bettered by Capital Bank of Jordan (which registered an 86.1% rise) among Arab lenders with a ROC of 15% and above.

M&A slowing

The merger that produced SNB looks set to represent the culmination of the latest wave of high-profile deals that have created a new class of megalender across the Arab world. Five of the top eight lenders in this year’s Top 100 Arab Banks ranking are either the product of, or have undergone, a significant acquisition in the past six years.

Yet, while improved economic conditions in the Gulf make larger deals less likely in the coming years, mergers and acquisitions continue among the region’s smaller lenders. Aside from the creation of SNB, the standout deal of 2021 was the $45bn merger of Qatar’s Masraf Al Rayan and smaller domestic rival Al Khalij Commercial Bank, completed in December.

This saw Masraf Al Rayan’s Tier 1 capital position increase by 56.6% to $5.7bn, the largest increase of any major lender in this year’s rankings, and sees it overtake Commercial Bank of Qatar to become the country’s third-largest lender by assets behind Qatar National Bank (QNB) and Qatar Islamic Bank (QIB). Masraf Al Rayan gained 13 places in this year’s rankings, more than any other major lender, rising to 18th spot.

Consolidation among the region’s smaller players is continuing into 2022; Bahrain’s ninth-largest lender Al Salam Bank agreed in January 2022 to acquire the consumer banking business of Ithmaar Bank, the seventh-largest, after commencing discussions in October 2021.

Meanwhile, the Central Bank of Oman in January gave its approval to the due diligence process for a potential merger of Sohar International Bank and Bank Nizwa, the country’s third- and eighth-largest lenders. Bank Nizwa was the highest gainer in terms of chart positions in this year’s rankings, with its 50.8% rise in Tier 1 capital helping it rise 15 positions to 78th.

Masraf Al Rayan ranks second in Qatar’s 2022 overall performance table, thanks to high scores for growth, leverage and soundness. QIB retains its position as the country’s best-performing bank for a second consecutive year, with impressive scores for asset quality, operational efficiency, liquidity and profitability. QNB — which retains its position as the region’s largest lender by assets — ranks fifth in Qatar in terms of overall performance, dragged down by low scores for soundness and leverage.

Qatari lenders are among the most cost-efficient in the Arab world, accounting for five of the regional top 10 for cost-to-income (COI) ratios. QIB and fellow sharia-compliant lender Qatar International Islamic Bank are second and third on the overall list, with COI ratios of 16.7% and 16.8%. Topping the list is Fonds d’Equipment Communal, Morocco’s ninth-largest lender, with a COI ratio of just 8.7% for 2021.

UAE’s mixed year

While Saudi lenders dominate the regional scene in terms of Tier 1 capital, it is the UAE’s 16 lenders that contribute the most to this year’s rankings in terms of assets, accounting for a quarter of the regional total.

Emirati lenders posted significant improvements in profitability during 2021, with each lender either reporting profit rises of more than 20% or returning to profitability from a loss the previous year. The country’s largest lender, First Abu Dhabi Bank, reported a 21% rise in pre-tax profits of the year, with the remaining members of the country’s big four — Emirates NBD, Abu Dhabi Commercial Bank (ADCB) and Dubai Islamic Bank — all posting increases of around a third.

Yet, asset and Tier 1 capital growth remains muted across the board in the UAE. Of the country’s 16 lenders in this year’s rankings, only First Abu Dhabi Bank (which remains in third place overall in the region behind SNB and QNB) and 12th-placed National Bank of Umm Al Qaiwain reported more than a 5% increase in Tier 1 capital. Both Emirates NBD and Dubai Islamic Bank reported falls in their Tier 1 capital and asset positions for the year.

Mashreqbank, the country’s fifth-largest lender, tops this year’s UAE performance tables, pushing previous leader FAB into second. Mashreqbank prevails this year thanks to top scores for four out of the eight performance metrics tracked, including growth, profitability and return on risk.

Growth was similarly muted among Kuwaiti lenders in this year’s rankings, after a challenging year in 2020. While profitability recovered well in 2021 — with the top four lenders all experiencing increases of over 40% compared with the previous year — asset growth was muted, with the exception of National Bank of Kuwait (NBK), the country’s largest lender. NBK and Kuwait Finance House retain their positions of ninth and 15th in this year’s rankings, with gains of 5.2 and 7.8% respectively in their Tier 1 capital positions.

Ahli United Bank (AUB) Kuwait led the way in terms of growth this year, overtaking Commercial Bank of Kuwait (CBK) to become the country’s fifth-largest lender, thanks to a 27.6% growth in Tier 1 capital. AUB’s long-mooted merger with KFH remains on hold since the start of the pandemic.

Yet, it is CBK that tops this year’s Top 10 Arab banks for pre-tax profit growth, in a list dominated by smaller players. After posting a figure of close to zero in 2020, the bank’s pre-tax profit of $191m represents an 87,832% increase for 2021.

Such growth in profits helped CBK retain its title as the country’s best performing lender, alongside top scores for return on risk, soundness and leverage. The country’s third-largest lender, Burgan Bank, comes second, thanks to leading scores for operational efficiency and liquidity.

Egypt growth starts to fade

One of the most notable features of this year’s ranking is a slowdown in growth in Egypt, the Arab world’s most populous nation. Following the devaluation of the Egyptian pound in 2016, the country has experienced an economic boom, with its banks regularly recording the highest growth rates across Africa and the Middle East.

However, despite being of being one of the few countries across the Arab world to escape a recession in 2020, the country’s economy has slowed. While its gas sector continues to thrive, foreign direct investment and private output contracting has decreased steadily.

Egypt, the world’s largest importer of wheat, has been hit particularly hard by Russia’s invasion of Ukraine, with the two countries also being major sources of tourism income for local resorts. The country devalued its currency by 15% in March, and has approached the International Monetary Fund for fresh financial assistance.

Although profitability improved across the board compared with 2020 figures, Tier 1 capital growth among Egyptian banks in the Top 100 Arab Banks ranking slowed to just 11.1% in 2021, compared with 28% the previous year.

While the country’s 14th-largest lender, Abu Dhabi Commercial Bank Egypt, reports the highest Tier 1 growth, of 126.9%, in this year’s Top 10 Arab Banks, just one other Egyptian lender — Housing and Development Bank — features in the top 10, compared with seven in the 2021 rankings.

The country’s largest lender, National Bank of Egypt (NBE), saw its Tier 1 capital grow by 9.7% in the 12 months to June 2021, compared with 28.1% the previous year. Second-placed bank Banque Misr, which saw its Tier 1 capital base grow by 84.2% in last year’s rankings, recorded an increase of just 4.3% this time around.

While NBE and Banque Misr remain the dominant banks in Egypt, accounting for just under half of the country’s entire asset base, they rank in fourth and fifth place in the country’s performance tables for 2022. Commercial International Bank (CIB) — Egypt’s largest private lender — tops the performance rankings for the third consecutive year, logging table-topping scores for profitability, operational efficiency, return on risk and liquidity.

Although asset growth slowed in 2021, Egyptian lenders continue to dominate the Arab world when it comes to profitability ratios, accounting for seven of the regional top 10s for both ROC and ROA. CIB and Crédit Agricole Egypt stand neck and neck at the top of the ROA rankings, each with a score of 2.66% for 2021. AlexBank stands at the top of the table for ROC with 24.61%, followed by Housing and Development Bank, Crédit Agricole Egypt and CIB.

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John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
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