The document summarizes analysis from QNB Group on the GCC banking sector between 2007-2011. Key findings include: 1) Total banking sector assets in the GCC rose 8.9% in 2011 to $1.46 trillion, equivalent to 106% of regional GDP, suggesting room for further growth. 2) The UAE banking sector is the largest with 31% of assets, followed by Saudi Arabia with 28%, though Saudi assets are smaller relative to GDP. 3) Loan penetration across the GCC rose to 56% of GDP in 2011, leaving potential for increases given higher rates elsewhere. The UAE has the highest loan rate at 78% of GDP. 4) Non-performing

1. QNB Economics
economics@qnb.com.qa
08 April 2012
QNB analysis shows that GCC banking sector is stable,
profitable and growing
GCC Banking Sector Assets (2007-11) Loan Penetration (2011)
(US$trn, growth rate shown) (Loans as % of GDP)
78%
7.5% 67%
1.46 64% GCC
1.38 3% Oman 57%
1.29 1.31 11% Kuwait 56%
47%
1.09 13% Qatar 40%
13% Bahrain
28% Saudi
UAE Bahrain Qatar Kuwait Oman Saudi
31% UAE
Source: GCC central banks and QNB Group analysis
2007 2008 2009 2010 2011
Source: GCC central banks and QNB Group analysis
Analysis of the GCC banking sector performed by 22.3%. It looks set to move ahead of Bahrain (an
QNB Group concludes that its prospects are stable, offshore financing hub) to take third place in the
banks are expected to be remain profitable and that the region by asset size, having previously overtaken
sector itself has room for growth. Kuwait in 2010.
Total assets in the sector rose by 8.9% in 2011 to Domestic banks hold the majority of assets in each
US$1.46trn, equivalent to 106% of regional GDP. By country, with the exception of Bahrain where foreign
comparison, assets in the UK equal 341% of its GDP. banks hold 57%. For the region as a whole, 83% of
This suggests that there is still plenty of room for GCC assets are held by domestic banks in their home
assets to grow in relative terms. countries.
GCC banking assets have been growing strongly Loans as a share of GDP in the GCC rose to 56%
in recent years, except for a slow period in 2009, at a in 2011, but this is low compared to countries like the
compound annual growth rate of 7.5% from 2007-11. UK where loans are 153% of GDP. This largely
This growth in banking assets is a consequence of the explains the GCC’s fairly low share of overall banking
region’s economic boom, driven by high oil prices. assets relative to GDP. There is therefore space for an
The UAE has the largest share of regional assets, increase in the loan penetration rates in the GCC.
31% of the total. Saudi Arabia’s banking sector is in The UAE has the highest level of domestic loan
second place, with 28% of GCC assets, but it is the penetration, 78% of GDP, primarily as a result of
smallest in relative terms, at around 71% of GDP. extensive lending to the real estate sector. Saudi
Part of the reason why Saudi assets are smaller in Arabia has the lowest, at 40% of GDP, but this may
relative terms is the importance of its specialized non- increase when a long-awaited law reforming mortgage
bank credit institutions, such as the Public Investment financing is implemented and boosts access to credit.
Fund. These fulfil typical financing and lending The asset quality of the GCC banking sector is
functions and their combined assets that are close to generally good and has been improving in those places
half those of the formal Saudi banking sector. that experienced some credit problems following the
Qatar’s banking sector, meanwhile, saw the most 2008 financial crisis. The regional non-performing
rapid increase in assets during 2011, growing by loan (NPL) ratio was 4.6%, at end-2010, the most
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2. QNB Economics
economics@qnb.com.qa
recent year with data for the whole region. It ranged In Qatar, where data is available for end-2011, the
from a low of 2.0% in Qatar to a high of 8.9% in capital adequacy ratio rose to 20.6%, from 16.1% a
Kuwait, based on IMF data. year before.
In addition to this, GCC regulators have In terms of profitability, the combined net profit of
encouraged banks in recent years to adopt more the ten top GCC banks increased by 18.1% in 2011, to
conservative provisioning policies for NPLs. This has US$12.3bn. QNB Group led the pack, with profit
helped to clean up their balance sheets and has growth of 32% to US$2.1bn.
improved coverage ratios. The GCC’s banking sector is in a good position to
According to the IIF, provisioning coverage ratios support the ongoing development of the region. Strong
ranged from 60% for Bahrain to 115% for Saudi GDP growth, which QNB Group forecasts will
Arabia in July 2011. This means that the regional average 4.6% in real terms for the GCC in 2012-13,
coverage ratio was high at about 84%. will increase the demand for bank financing across the
The Basel II framework of international banking economy. As a result, regional banking assets are
standards has been applied across the GCC, and capital expected to continue to grow strongly. At the same
adequacy ratios are well above the recommended time, conservative banking policies will ensure that the
minimum level of 8%. At the end of 2010 they ranged banks remain stable through this period of growth.
from 12% in Bahrain to 21.8% in UAE. ** Ends **
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