Non-performing loans ratio for GCC banks up by 0.4%: KPMG report

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  • Report provides banking industry leaders with analysis along with insights and forward-looking views

  • Cost and operational efficiencies expected to remain a top priority for banks in 2021

 

The overall non-performing loans (NPL) ratio for the Gulf Cooperation Council banking sector has increased by 0.4% and now stands at 3.4%, KPMG said in the sixth edition of its GCC listed banks’ results’

Bhavesh Gandhi, Partner and Head of Financial Services at KPMG in Kuwait, said the NPL ratio increased by 0.3% amid the crisis and remained at a low level of 1.6% in 2020. He said it is predicted that NPL and loan impairment will rise in 2021 as the true effects of the pandemic on businesses become clearer

“Asset growth is not anticipated to pick up significantly from the last year as banks adopt a more cautious approach to lending and banks are expected to proactively manage their non-performing portfolios through possible sales and write-offs,” he said.

Regionally, in 2020, banks had experienced margin pressures, so cost and operational efficiencies are expected to remain a top priority for management in 2021. Banks need to maintain a balance between face-to-face client interactions and remote working to retain their top talent and reduce of real estate costs.

The pandemic has encouraged banks to become agile and accelerate their digital transformation plans by adopting branchless and cashless models. Banks in the region must also embrace technology for areas such as cybersecurity, Basel IV regulations, eKYC, anti-money laundering, etc.

Looking in the future, the GCC banks may prepare for profitability getting impacted due to the pandemic. However, the situation might not be as bad as 2020 owing to reasons such as shrinking profit margins, slower loan growth and rising loan provisioning.

Furthermore, the ESG (environmental, social and governance) agenda is expected to gain more importance this year and beyond as investors place better scrutiny around banking practices. Lenders in the region have also been consolidating as they aspire to stay competitive.

Mergers in 2020, as well as potential mergers in the future, could create stronger and larger financial institutions and this consolidation is expected to continue in 2021.

All things considered, ‘cautious optimism’ would be the way forward for the GCC banking sector. Currently, banks are reasonably positioned to combat the economic challenges. However, the uncertainty of the pandemic could result in muted growth with greater caution, said the KPMG report titled ‘Banks Redefined’.

This report provides banking industry leaders with succinct analysis along with insights and forward-looking views. The KPMG said in a statement that it hopes that its analysis, insights, and predictions will continue to help drive banking strategies and shape the industry across the region

While the onset of the COVID-19 pandemic resulted in financial disruptions the world over, it also enabled banks to redefine their business models. Overall, the capital adequacy ratio increased from 18.4% in 2019 to 18.7% but the net profit declined from $36.6 billion in 2019 to $25.4 billion in 2020. Additionally, total assets and cost-to-income ratio rose from USD 2.3 trillion to USD 2.5 trillion and from 40.4% to 41.4%, respectively.

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