Strong lending growth in GCC banking despite higher interest rates: Kamco

Despite the high interest rates that followed the US Federal Reserve’s recent quantitative tightening, the banking sector within the Gulf Cooperation Council exhibited continuous lending growth during the second quarter of 2023, as per findings from a Kamco Invest report.

The report attributed this sequential growth during the quarter to a robust projects market pipeline and government efforts to mitigate the impact of higher interest rates.

In response to persistent inflation in the US economy, the Federal Reserve raised its key interest rate from 0.5 percent in March 2022 to 5.5 percent in July 2023, marking its highest level in over two decades.

The report added that the impetus provided by a range of new big-ticket projects and reform initiatives announced across the GCC, which in turn have boosted corporate lending.

Moreover, GCC-listed banks registered a record-high distribution of $1.9 trillion in gross loans at the end of the second quarter.

Kamco’s report underscored a quarter-on-quarter growth of 1.9 percent or $36.3 billion, backed by growth observed across all GCC markets.

Similarly, the report noted that aggregate net loans experienced a slightly more modest growth of 1.7 percent during the quarter, reaching a total of $1.8 trillion.

Zooming in on specific countries, the report outlined Saudi Arabia’s standout performance in outstanding credit facilities, marking a 2.5 percent growth during the second quarter of 2023. In contrast, Kuwait, Qatar, Bahrain, and Oman witnessed below 1 percent growth rates.

The Kamco report attributed Saudi lending growth to sectors such as utilities, real estate, and trade, which exhibited over 5 percent quarter-on-quarter expansion in the second three months of 2023.

As for liquidity, the report observed that listed GCC banks reported a slight uptick of 1 percent quarter on quarter in customer deposits, reaching $2.3 trillion. This shift was driven by higher deposits across most markets, offsetting a decline in Qatar and Kuwait.

The report further added that the net impact of rapid gross loan growth in contrast to customer deposits led to a marginal escalation in the GCC’s aggregate loan-to-deposit ratio, reaching 79 percent by the close of the second quarter of the year.

“Total net income reached $13.7 billion with a quarter-on-quarter increase of 3.5 percent supported by both higher net interest income and non-interest income during the quarter,” Kamco’s report stated, adding that higher interest rates supported net interest income during the quarter.