EFG-Hermes Group, in its latest report, expects the Kuwaiti banks, at the level of Gulf banks during the first quarter of 2022, to achieve the highest growth in profits on an annual basis.
For the first quarter, according to its estimates, the profit growth of Kuwaiti banks will reach 33 percent on an annual basis, compared to 21 percent for UAE banks, 15 percent for Saudi banks, and 21 percent for Qatari banks.
Hermes stated that Kuwaiti banks’ allocations decreased in the second half of 2021 compared to the first half of the same year, and credit quality improved, which bodes well for the cost of risks in 2022, while banking sources said the consumer spending continues to drive the strong growth of individual loans, although its pace began to slow from 2021.
As for revenue growth, the report expected that Kuwaiti banks would reach 5% on an annual basis during the first quarter of this year, while “Hermes” estimates that loan growth will be 10%, with a cost of risk of 84 basis points during the period. The same compared to 131 basis points in the first quarter of 2021.
On a quarterly basis, Hermes estimates that gross profit will decline 10 percent, as a result of a 5 percent decline in total revenue on a quarterly basis, in addition to a slight increase in provisioning costs on a quarterly basis.
The report anticipates the following main trends in the results of the first quarter of 2022:
1 – Kuwaiti banks are recording strong credit growth on an annual basis of 10 percent, driven by double-digit growth in individual loans and a slight recovery in credit demand from companies due to the improvement of the business sector.
2 – Margins are generally stable on an annual and quarterly basis, as “Hermes” expects the recent increase of 25 basis points in the discount rate by the Central Bank of Kuwait to enhance the net interest margins for banks starting from the second quarter of this year.
3 – Decreased provisioning costs on an annual basis from a high base. NPL coverage rates increased in 2021, while NPL ratios decreased across the sector, with significant provisioning reserves in all banks on top of IFRS9 (Kuwaiti banks continue to apply strict Central Bank of Kuwait rules).
On the other hand, the report indicated that the performance of Gulf bank stock prices has been strong since the beginning of the year to date with the possibility of several hikes in interest rates in 2022 and the periodic recovery in demand for loans, and high oil prices, and since the economies of the Gulf countries in general are less vulnerable to other emerging markets to the repercussions of the conflict between Russia and Ukraine.
For most countries in the Middle East and North Africa region, EFG Hermes expects overall bank profits to post strong double-digit increases year-over-year in the first quarter of this year.
The macro fundamentals, particularly in the Gulf countries, are generally supportive and for many of the banks they cover (particularly Kuwaiti banks).
In general, the report expects an increase in the demand for credit from companies in the first quarter as a result of improved business activity, which led to the recovery of basic revenues for banks compared to the first quarter of 2021.