Gulf Banks Ride Lending Wave to Profit Gains

Banks in the Gulf Cooperation Council (GCC) region reported a significant rise in net profits for the first quarter of 2024, buoyed by an increase in lending activity. According to a report by Kamco Invest, a regional investment firm, net profits for GCC banks surged by 10. 5% year-on-year to $14. 4 billion during the first three months of the year.

This positive performance comes amidst a backdrop of rising borrowing costs. However, the report highlights that this hasn't deterred lending activity, which continues to climb in the region. The study reveals that gross loans reached a record high of $2. 02 trillion by the end of the first quarter, reflecting a 1. 8% increase compared to the previous quarter. Net loans also saw a healthy growth of 2. 3% sequentially, reaching $1. 92 trillion.

Kamco Invest attributes this rise in lending to a combination of factors. One key driver is the ongoing economic recovery in the region, fueled by higher oil prices. Businesses are looking to capitalize on this growth by expanding their operations, which necessitates securing loans. Additionally, there is a growing appetite for credit among individual borrowers, potentially driven by factors like increasing disposable income and a desire to invest in assets like real estate.

The report further emphasizes a noteworthy trend in customer deposits. Depositors, enticed by the prospect of higher interest income, are increasingly turning to banks to park their funds. This resulted in total customer deposits in the GCC region reaching a record $2. 45 trillion at the end of the first quarter. This represents the strongest quarter-on-quarter growth in deposits in a year, at a healthy 2. 8%.

The robust growth in deposits is positive news for GCC banks as it strengthens their liquidity position. This, in turn, allows them to extend further credit to borrowers, potentially fueling additional economic activity in the region. Analysts predict that the positive outlook for the GCC banking sector is likely to continue in the foreseeable future, driven by the aforementioned factors and the expectation of sustained economic growth.

However, some industry experts caution that rising interest rates could dampen lending activity in the long run. They recommend that banks maintain a cautious approach to credit risk management to ensure the sustainability of their profit growth.