QNB grabs top spot on list of GCC’s 10 fastest growing banks globally

By Pratap John/Chief Business Reporter

Qatar’s QNB leads the top 10 GCC banks that are among the fastest growing globally, a report has shown.  QNB Group’s assets totalled $118bn in June, up 30% on the same period last year. 

The Doha-based lender is the largest GCC bank by assets and the fastest growing in the region. Also, QNB is the only Qatari bank in the list of top ten GCC banks.

QNB’s asset growth was driven by the strategic acquisition of NSGB in Egypt, and higher international stakes. At the end of 2012, 79% of QNB’s assets were in Qatar. Therefore, strong growth in Qatar’s economy (forecast to be 6.5% in 2013) has also supported growth in QNB Group’s assets.

Growth is expected to accelerate as the government rolls out its large infrastructure investment programme in time to meet requirements for the 2022 World Cup. With a strong net foreign asset position (high and rising international reserves and a large sovereign wealth fund) and high hydrocarbon revenue, Qatar is well insulated from capital flight risks faced by other emerging markets. This will enable it to comfortably roll out its infrastructure development plan, supporting the economy and the banking sector.

A report by QNB yesterday said the top ten GCC banks are likely to remain “well insulated” from the current turmoil in emerging markets (EM) as their growth momentum is underpinned by strong economic fundamentals in the region: high revenue from hydrocarbon exports; positive net foreign asset positions; strong support for the banking system; and large government spending on infrastructure.

The growth in assets of GCC banks remains strong, notwithstanding the current EM crisis. Overall, assets of the top ten GCC banks grew by 16% in twelve months to end–June 2013 to reach $743bn. This growth was driven by strong oil prices and high non-oil economic activity. At the same time, large-scale government spending on major projects across the region, particularly in Qatar and Saudi Arabia, created significant banking opportunities.

EM banks outside the GCC are facing a “period of turmoil”. The expected tapering of Quantitative Easing (QE) in the US has tightened global liquidity. Cheap capital that had previously flown into emerging markets is now reversing its course, leading to sharp exchange rate depreciations, higher interest rates, and stock market corrections. This is having a “negative impact” on all aspects of EM banking sectors.

GCC banks, however, have largely escaped this global liquidity crunch as the region has only limited dependency on foreign capital for its funding. Strong hydrocarbon revenue and surplus foreign assets built up by GCC authorities provide ample resources for continued government spending on infrastructure and guarantee ongoing systemic support for the banking system. This improves the operating environment and outlook for the banking sector and helps insulate the region from the EM crisis.

According to QNB, the leading GCC banks are therefore likely to continue their strong performance in 2013 and beyond. Furthermore, the largest GCC banks comfortably meet capital requirements (the average Tier 1 Capital ratio amongst the top ten GCC banks is 16%); have strong asset quality (the average ratio of non-performing loans (NPLs) to total loans is 1.9% excluding Emirates NBD, which has NPLs of 14%); and robust profit growth (average profit growth was 16% in the year to end-June 2013).

According to QNB Group, this adds further comfort to the view that the top GCC banks are “well insulated” against the EM turmoil that is currently captivating global financial markets.

Some four of the top 10 GCC banks are from Saudi Arabia. Assets at these banks have grown 10% in the 12 months to end-June 2013. This was driven by both corporate and retail loan growth. On the corporate side, high oil production and prices has boosted revenue, supporting government spending on major infrastructure projects.

The three UAE banks in the GCC top 10 witnessed a sharp pickup in activity over the last year, especially in the real estate and services sector in Dubai.

The two Kuwaiti banks on the list have performed strongly with asset growth of 17% in the 12 months to end-June 2013.

“Overall, the GCC provides a strong macroeconomic operating environment for the banking sector to flourish. High hydrocarbon prices support revenue streams for project spending and surplus foreign assets,” the report said.

Qatari banks sound

Qatar’s economic growth and project pipeline presents major opportunities for the country’s banking sector to boost growth of domestic credit and investment as well as profits.

Profits of Qatari banks have risen along with assets and reached $2.4bn in the first half of 2013, 9% higher than the same period in 2012. This equates to “high returns” of 2.4% on average assets and 15.2% on average equity, QNB has said in a report.

This is being achieved while asset quality remains high across the banking sector: NPLs were as low as 1.7% of total loans at end-2012. They have been kept down by strong government support: the government stepped in to purchase bad real estate loans and equity portfolios from banks in the aftermath of the 2008-09 financial crisis. Additionally, Qatari banks are well capitalised with Tier 1 capital at 18% of risk weighted assets at end-2012.