Banking Sector: Regional Convergence, But GCC To Outperform


BMI View: We hold a broadly positive outlook on banking sect ors across the Middle East in H2 14 and beyond, and expect a slight convergence in growth rates due to base effects .   The Gulf Cooperation Council will remain the outperformer across the   Middle East and North Africa 's banking sector over the coming years , although credit growth will continue to ease throughout the coming quarters . Outside of the Gulf , we forecast an uptick in asset growth in Egypt and Iran on the back of an improving economic outlook and low base effects .  

We hold a broadly positive outlook on banking sectors across the Middle East in H214 and beyond, and expect a slight convergence in growth rates due to base effects. Commercial banks from the six economies of the Gulf Cooperation Council (GCC) are set to remain the regional outperformers as we head into 2015, although credit growth will continue to ease throughout the coming quarters. High liquidity has helped to drive down banks' funding costs, while asset quality (as measured by non-performing loans) has stayed on an improving path over the first half of 2014. Threats to stability remain low, with GCC banks well capitalised compared with regional and global peers; the implementation of Basel III capital standards is so far progressing smoothly. We forecast the average loan-to-deposit ratio across the GCC to fall to 0.91 by the end of 2015, below 0.95 in 2012.

Despite elevated deposit growth, lending activity is moderating across most of the GCC, either as a result of new regulations (in Oman and Qatar) or a decline in demand after two years of solid expansion. In Qatar - hitherto the most buoyant market - rising uncertainty over the country's hosting of the 2022 FIFA World Cup could further weaken lending growth over the second half of 2014, although we expect it to remain in double-digit territory. We forecast average annual credit growth of 9.4% in the GCC by the end of the year (rising slightly to 9.9% in 2015), a slight uptick from the rate of 8.8% recorded in 2013 but down from 11.6% in 2012. The more limited lending growth opportunities, combined with the high availability of capital, will fuel even greater price competition among GCC banks over the coming quarters.

Convergence, But GCC To Lead
Middle East - Banking Sector Credit Growth, % y-o-y

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