- The top 10 GCC banks have demonstrated strong growth over the past year, with total assets growing 16% to $743 billion. QNB Group from Qatar was the fastest growing at 30%. - GCC banks have been largely insulated from turmoil in emerging markets due to strong economic fundamentals in the region from hydrocarbon exports and government spending. - The report predicts continued strong performance from leading GCC banks due to high oil prices, economic growth, large infrastructure projects, and support for the banking system.

1.
Weekly Commentary
QNB Economics
economics@qnb.com.qa
1 September 2013
Disclaimer and Copyright Notice: QNB Group accepts no liability whatsoever for any direct or indirect losses arising from use of this report.
Where an opinion is expressed, unless otherwise provided, it is that of the analyst or author only. Any investment decision should depend on the individual
circumstances of the investor and be based on specifically engaged investment advice. The report is distributed on a complimentary basis. It may not be
reproduced in whole or in part without permission from QNB Group.
J un-­‐13 J un-­‐12 Chg.
QNB Qatar 118
91
30%
National
Commercial
Bank Saudi
97
85
13%
Emirates
NBD UAE 91
81
12%
National
Banko
of
Abu
Dhabi UAE 89
74
21%
Al
Rajhi
Bank Saudi
73
64
15%
National
Bank
of
Kuwait Kuwait 63
51
23%
Kuwait
Finance
House Kuwait 56
50
12%
Samba Saudi
55
53
3%
Riyad
Bank Saudi
51
48
6%
First
Gulf
Bank UAE 50
44
12%
Total 743
641
16%
Top Ten GCC Banks Have Demonstrated Strong Growth
And Are Well Insulated From The Turmoil Facing
Emerging Markets,
According to QNB Group
The top ten GCC banks are among the fastest
growing globally, led by QNB Group. They 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 (Table 1) to
reach USD743bn. 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.
Table 1. Top Ten GCC Banks by Assets
(USD bn and % change shown)
Source: Bloomberg and QNB Group analysis
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.

2.
Weekly Commentary
QNB Economics
economics@qnb.com.qa
1 September 2013
Disclaimer and Copyright Notice: QNB Group accepts no liability whatsoever for any direct or indirect losses arising from use of this report.
Where an opinion is expressed, unless otherwise provided, it is that of the analyst or author only. Any investment decision should depend on the individual
circumstances of the investor and be based on specifically engaged investment advice. The report is distributed on a complimentary basis. It may not be
reproduced in whole or in part without permission from QNB Group.
QNB Group, the largest GCC bank by assets, is the
only Qatari bank in the top ten list and was the
fastest growing bank with total assets expanding
by 30% in the 12 months to end-­‐June 2013. This
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 program 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.
Qatar’s economic growth and project pipeline
presents major opportunities for QNB and the
wider banking sector to boost growth of domestic
credit and investment as well as profits. Profits of
Qatari banks are rising along with assets; reaching
USD2.4bn 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. 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, banks are
well capitalized with Tier 1 capital at 18% of risk
weighted assets at end-­‐2012.
A total of 4 of the banks in the GCC top ten 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. More recently, USD22bn of contracts
were awarded in July for the Riyadh Metro. Such
projects have provided banks with considerable
financing opportunities, driving asset growth.
Retail loan growth has been propelled by the new
and fast-­‐growing mortgage loan sector. The
current program of project spending totals
USD500bn, including large-­‐scale housing
construction, which will continue to support
lending, mortgages and asset growth going
forward. Again, hydrocarbon revenue and an
extremely strong net foreign asset position
provide ample resources for the Saudi authorities
to meet spending plans, supporting the economy
and the banking sector.
Further insulating the banking sector, the top
Saudi banks are highly capitalized (average Tier 1
capital ratio of 17%) with low NPLs (1.5% of total
loans on average) and strong profit growth
(8.2%). The low interest rate environment, strong
competition and high liquidity has compressed net
interest margins. However, non-­‐interest income
has supported profit growth, such as fee income
from credit expansion, off-­‐balance-­‐sheet items and
a surge in trading on the Tadawul stock exchange.
The 3 UAE banks in the GCC top ten witnessed a
sharp pickup in activity over the last year,
especially in the real estate and services sector in
Dubai. Profits at the largest UAE bank, Emirates
NBD (Dubai), grew 40% in the first half of 2013
compared with the first half of 2012. However,
return on average equity remains low (8.2%) as
the bank continues to suffer from high NPLs
(14%), the legacy of Dubai’s real estate debt crisis
in 2009. A number of the other banks in Dubai face
similar issues to Emirates NBD. At the end of
2012, Moody’s downgraded 4 Dubai-­‐based banks
(Emirates NBD, Mashreqbank, Commercial Bank
of Dubai and Dubai Islamic Bank) owing to
elevated NPLs (15%-­‐17%) and low provisioning
for bad loans, despite improvements in the Dubai
operating environment. The largest Abu Dhabi-­‐
based banks, National Bank of Abu Dhabi and First
Gulf Bank, have already returned to high

3.
Weekly Commentary
QNB Economics
economics@qnb.com.qa
1 September 2013
Disclaimer and Copyright Notice: QNB Group accepts no liability whatsoever for any direct or indirect losses arising from use of this report.
Where an opinion is expressed, unless otherwise provided, it is that of the analyst or author only. Any investment decision should depend on the individual
circumstances of the investor and be based on specifically engaged investment advice. The report is distributed on a complimentary basis. It may not be
reproduced in whole or in part without permission from QNB Group.
profitability (return on average equity around
16%) as they were less exposed to the crash in the
Dubai real estate market and benefited from
stronger state support. The UAE banking system
has a strong track record of systemic support,
most recently during the last financial crisis when
liquidity and capital facilities were provided to
distressed banks. Such implicit guarantees help
protect the banking system from capital flight
risks.
The 2 Kuwaiti banks in the top ten list have
performed strongly with asset growth of 17% in
the 12 months to end-­‐June 2013. The asset growth
was mainly driven by National Bank of Kuwait.
Corporate lending has accelerated as the
government’s USD110bn development plan has
gathered pace. However, in Kuwait, consumer loan
growth has been particularly strong, driven by
public sector wage increases and transfers. Oil
revenue and a strong net foreign asset position
should ensure continued support to the economy
and banking sector in Kuwait, mainly through
government wages and transfers and to a lesser
extent on government spending. The ongoing
deleveraging in nonbank financial institutions will
continue to hold back growth in the banking
sector as credit to these institutions shrinks.
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. This should continue to support
lending and asset growth for the top GCC banks,
according to QNB Group, and is likely to keep the
GCC well insulated from the turmoil gripping EM
banking sectors.