Saudi’s Al Rajhi Bank delivered highest ROA in Middle East, while National Bank of Egypt strengthened asset quality and liquidity- The Asian Banker

Saudi’s Al Rajhi Bank delivered highest ROA in Middle East, while National Bank of Egypt strengthened asset quality and liquidity- The Asian Banker

Al Rajhi Bank and National Bank of Egypt have emerged as the strongest bank in the Middle East and Africa respectively. Across the region, the average ROA of banks fell to 0.9% in 2020 from 1.6% in the year earlier, while their capitalisation remained robust

The combined net profit of the 200 largest banks in the Middle East and Africa in terms of total assets slipped 36% in 2020, according to The Middle East and Africa 200 (MEA200) 2021, an evaluation of the 200 largest commercial banks and financial holding companies (banks) in the Middle East and Africa for 2020, with a March 2021 cutoff.

This year’s evaluation covers banks from 16 countries, namely Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) in the Middle East and Algeria, Egypt, Ghana, Kenya, Mauritius, Morocco, Nigeria and South Africa in Africa. They are ranked according to asset size and overall strength.

Saudi Arabia-based Al Rajhi Bank and National Bank of Egypt are the strongest banks in the Middle East and Africa respectively. This is based on a detailed and transparent scorecard that ranks banks on six areas of balance sheet financial performance, namely the ability to scale, balance sheet growth, risk profile, profitability, asset quality and liquidity.

Al Rajhi Bank enjoyed the highest return on assets (ROA) among all the Middle Eastern banks on the list, at 2.5%. Its asset quality remained strong, as reflected by the low gross non-performing loan (NPL) ratio of 0.76% and high loan loss reserves (LLRs) to gross NPLs ratio of 306%. National Bank of Egypt registered strong balance sheet growth and demonstrated good asset quality and a strong liquidity position.

Five of the seven African banks in the top 20 moved up the ranks

The top 20 largest banks in the Middle East and Africa comprise five Saudi Arabian banks, four South African banks, four UAE banks, two Egyptian banks, two Kuwaiti banks and one each from Jordan, Morocco and Qatar. Qatar National Bank and First Abu Dhabi Bank retained their positions as the top two largest banks in the region, with total assets of $282 billion and $250 billion respectively at the end of 2020. Emirates NBD and Standard Bank Group remained in third and fourth place respectively.

African banks improved their showing in the top 20 largest banks. The seven African banks among the top 20 registered a 14.5% weighted average asset growth, against 10.4% for the 13 Middle Eastern banks. National Bank of Egypt rose three places to sixth in the ranking, with its total assets up by 23.4% to $125 billion. FirstRand, in contrast, dropped three places to ninth. The position of Absa Group improved by one place to tenth, pushing National Bank of Kuwait down to 11th place. In addition, Nedbank Group, Banque Misr and Attijariwafa Bank also climbed four places, three places and one place respectively.

The 200 banks listed had a combined total assets of $4.1 trillion, net loans of $2.2 trillion, customer deposits of $2.8 trillion and net profit of $36.4 billion. Egypt, the UAE, Nigeria and Ghana had the most banks on the list. The aggregate total assets of banks in the UAE, Saudi Arabia, South Africa and Qatar accounted for 20.9%, 16.2%, 12.7% and 12.2% of total assets of the 200 largest banks respectively, while Ghana, Algeria, Mauritius and Kenya had the lowest share of total assets, at 0.6%, 0.8%, 1% and 1.2% respectively.

Saudi Arabian and Qatari banks demonstrated resilience

The top 10 strongest banks in the Middle East comprise four Saudi Arabian banks, three Qatari banks and one each from Kuwait, the UAE and Bahrain. With the weighted average strength score of 3.83 and 3.65 out of five respectively, Saudi Arabian and Qatari banks performed much better than banks in other Middle Eastern countries. Banks in the two countries recorded the highest scores in profitability, measured by four parameters, namely operating profit growth, ROA, cost-to-income ratio and non-interest income to total operating income ratio. Meanwhile, Saudi Arabian and Qatari banks also maintained high level of capitalisation and sound asset quality. However, their liquid assets to total deposits and borrowings ratios were lower than the average in the region.

The balance sheet strength of banks in the UAE declined in 2020, with the strength score averaging only 3.37 out of five, lower than the average strength score recorded by banks in the Middle East at 3.46. Banks in the UAE registered slower balance sheet growth and their profitability and asset quality also weakened. The average gross NPL ratio deteriorated from 4.8% in 2019 to 6.2% in 2020 and the LLRs to gross NPLs ratio was down slightly from 95% to 90%. First Abu Dhabi Bank recorded the lowest gross NPL ratio among UAE banks at 4%, while Emirates NBD maintained the highest LLRs to gross NPLs ratio at 126%. Meanwhile, UAE banks saw their average ROA fall the most from 1.7% in 2019 to 0.7% in 2020.

The average ROA of Middle Eastern banks on the list stood at 0.88% in 2020, lower than 1.53% in the previous year. In 2020, 21 Middle Eastern banks reported net losses, which comprise eight banks from the UAE, four from Lebanon, three from Bahrain, two from Saudi Arabia and one each from Jordan, Kuwait, Oman and Qatar. Among these banks, Saudi British Bank had the largest net loss of $1.1 billion, largely driven by the goodwill impairment charge of $1.98 billion, which was recognised following its merger with Alawwal Bank in June 2019. In addition to the UAE, Jordan and Bahrain also experienced a considerable decrease in ROA. Meanwhile, average gross NPL ratio of banks in the region deteriorated modestly from 3.56% in 2019 to 4.29% in 2020, as the COVID-related support measures postponed the asset quality issues. The asset quality of banks in Kuwait and Saudi Arabia remained the strongest, while remaining the weakest in Lebanon.

Meanwhile, Middle Eastern banks maintained strong capital positions as evidenced by an improvement in average capital adequacy ratio (CAR) to 18.4% in 2020 from 17.9% in 2019. Only Bahraini banks experienced a contraction in CAR from 19.2% to 17.9%. Banks in Saudi Arabia enjoyed the highest CAR at 20.4%, followed by Qatar (18.9%) and Oman (18.5%).

Egyptian and South African banks continued to outperform

The top 10 strongest banks in Africa comprise three Nigerian banks, three South African banks and two each from Egypt and Mauritius. The weighted average strength score of African banks on the list declined to 3 from 3.13 in last year’s evaluation, while Egyptian and South African banks continued to outperform.

The profitability of African banks on the list weakened in 2020, with average ROA down from 1.74% in 2019 to 1.07% and average cost-to-income ratio up to 51.7% from 50%. South African banks had the biggest fall in average ROA, from 1.71% to 0.74%, and Kenyan banks also witnessed a significant drop in average ROA from 2.8% to 1.85%. Banks in Morocco recorded the lowest average ROA at 0.45%, while Ghanaian and Nigerian banks reported the highest, at 3.34% and 1.96% respectively.

Egyptian banks demonstrated the strongest asset quality with a 3.5% average gross NPL ratio in 2020, lower than the average for all African banks on the list at 5.9%. Kenyan banks saw average gross NPL ratio weaken from 10.1% to 12.6%, the worst in the region. In addition, the average LLRs to gross NPLs ratio of Egyptian banks reached 259%, much higher than 68.6% for South African banks and 72.4% for Kenyan banks. The average gross NPL ratio of Ghanaian banks remained high at 10.9%, albeit seeing some improvement in 2020.

African banks performed strongly in terms of liquidity, with average liquid assets to total deposits and borrowings ratio up from 41.7% to 46.2%. Banks in Egypt maintained the highest liquid assets to total deposits and borrowings ratio at 59.4%, followed by Nigeria with 57.9% and Mauritius with 50.1%. Meanwhile, African banks maintained sufficient capital buffers as most banking sectors experienced an improvement in the level of capitalisation.

Bank consolidation across the region will help banks achieve their scale and improve their financial strength. Saudi Arabia’s National Commercial Bank and Samba Financial Group merged and created Saudi National Bank in April 2021. With total assets of $239 billion at the end of June 2021, the bank is on track to be the third largest bank in the region in next year’s MEA200. The operating environment for banks has remained challenging, and thus banks’ financial performance continues to be under pressure, especially in terms of asset quality and profitability

Click here to see the Largest Banks in the Middle East and Africa

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by : on 2021-11-22 05:27:00

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