Since the advent of oil and its extensive worldwide commercialisation, the MENA region spearheaded by its petrol based countries have risen to global attention mainly because of their accumulation of wealth but sadly because also of the socio-political unrests that sporadically erupt here or there as the case may be. Meanwhile, notion such as “Islamic Finance” came to mute from niche to mainstream and despite any harmonisation in cross border activities between neighbouring countries, many believe the way forward would be for all financial institutions to get together and coordinate their movements. The question would then be how could this be a reality without any political will? The situation prevalent in many areas of the MENA countries would not be in favour. The Gulf crisis, the Maghreb standstill situation, the Mashrek’s unresolved multiple situation, etc. Life carrying on regardless, the banks of the Arab world have been meticulously assessed and reported in this article of The Banker written by James King on October 2nd, 2017. The author believes that the Arab banks will continue to bolster their capital positions and are braced to face future challenges from a position of considerable strength. Here are some excerpts:
Though 2017’s Top 100 Arab Banks ranking shows a slowdown in profitability and growth, the Middle East is doing relatively well. While no longer stellar, the new normal of lower oil prices sees banks enjoying solid performances and improved cost-to-income ratios. James King reports.
The Banker’s Top 100 Arab Banks ranking for 2017 paints a picture of regional resilience, even as a number of aggregate performance metrics have declined. Lower oil prices and rising geopolitical uncertainties have featured among the challenges facing banks across the region in recent times. These difficulties have dragged down profitability and asset growth in some markets, leading to a wider regional slowdown in some growth markers relative to the previous ranking.
Despite this shift, lenders across the Middle East and North Africa have continued to bolster their capital positions and are braced to face future challenges from a position of considerable strength. The region’s Tier 1 capital climbed by 8.1% over the 2016 review period, reaching $311.4bn – up from $282.8bn in last year’s ranking. This growth rate almost matched that of the 2016 ranking, which hit 8.6%.
Qatar saw the largest increase to its aggregate Tier 1 capital position with growth of 15.7%. Lebanon was a close second with 13.6%, while Jordan registered a 12.9% gain, taking third place in the growth stakes.
Total assets up
The region’s aggregate balance sheet also expanded over the review period, albeit more slowly than in the previous ranking. Total assets hit $2677bn, up by 4.9% from our 2016 ranking. This is a slower than in the previous ranking, when assets climbed by 5.8%, and the ranking before, which saw a 10.5% increase.
Meanwhile, pre-tax profitability growth has continued to slow. In the ranking two years ago, pre-tax profits across the region grew by 13.4%. The following year this number was 4.7%, while in the current ranking it is barely positive at 1.45%. In some markets, collapsing oil prices have led to more careful government expenditure and the withdrawal of public sector deposits. This in turn has contributed to slower-than-usual economic growth and an increase in the cost of funds, both of which may have played a part in denting regional banking profits.
Further signs of pressure can be seen in other performance metrics. The aggregate return on capital for the region’s top 100 lenders is 14.3% in the current ranking. This compares with 15.6% the previous year, despite the two rankings enjoying almost identical aggregate Tier 1 capital growth. And in a further sign of the pressures facing banks in some markets, the aggregate return on assets is 1.67% in the current ranking compared with 1.77% previously.