GCC loan-to-deposit ratio below 80% for first time in 7 quarters

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CAIRO: The Gulf region’s loan-to-deposit ratio fell by 160 basis points in the second quarter of 2022, due to higher customer deposits and slightly slower lending activity, according to a report released by KAMCO invest.

Customer deposits in the Gulf region recorded a year high of 4 percent month-on-month in the second quarter to reach $2.2 trillion.

The Gulf region’s aggregate gross loans remained potent throughout the quarter, having risen by 2 percent quarter-on-quarter, leading to stronger loan books by the end of the second quarter of 2022.

Net loans, however, saw a slightly slower growth rate, increasing by just 1.9 percent in the second quarter, according to KAMCO’s report.

A drop in the loan-to-deposit ratio of the Gulf Cooperation Council’s banking sector signifies an increased level of liquidity, which in turn indicates that banks are more capable of dealing with unforeseen events like loan losses and withdrawals, making the macroeconomy more attractive to investors.

“This was one of the highest sequential declines in the ratio that reached a multi-quarter low level of 79.1 percent,” stated the report.

That meant the loan-to-deposit ratio dropped below 80 percent for the first time in seven quarters.

Saudi Arabia and the UAE saw the strongest quarterly growth in customer deposits, recording 6.1 and 5.5 percent growth respectively, while Qatar and Oman saw relatively smaller growth, according to the report.

The GCC’s total assets peaked at $2.8 trillion after a 2.9 percent rise in the second quarter of 2022 compared to the first quarter.

“Both conventional and Islamic banks witnessed a similar pace of asset growth during the quarter reflecting strong economic growth as seen in the Purchasing Managers Index figures for Saudi Arabia and the UAE,” stated the report.

The analysis set out how rising oil prices since the start of the Ukraine war enabled many Gulf countries to report fiscal surpluses — seen in the banking credit facilities in the second quarter of 2022.

“Consistently elevated oil prices since the start of the year was reflected in the latest customer deposit numbers for listed banks in the GCC,” stated the report.

The region’s banking sector net profits peaked at $11.1 billion in the second quarter, with a monthly growth of 1.9 percent and a yearly growth of 31.9 percent, according to the report.

“The increase in aggregate profits was mainly led by higher revenues for the sector coupled with a slight drop in provisions during the quarter,” it said.

Omani banks recorded the largest quarterly rise in net profits at 13.9 percent, followed by Qatari and Bahraini banks with growth of 3.6 and 3.2 respectively, Saudi banks recorded 2.7 percent growth, while the UAE’s banks came in last, recording flat profits.

Regarding bottom line performance, the region’s quarterly net income also reached a record high of $1.1 billion in the second quarter supported by GCC growth. This was despite Kuwait’s slight drop of 0.6 percent that was due to higher cost-to-income ratio.

As for top line performance, it revealed higher interest rates by central banks across the region in the second quarter as a result of the US Fed’s consistent rate hikes.