- October 22, 2019
- 3092 Views
A demonstration of resilience
By Wendy Weng
Banks in Saudi Arabia and UAE remain the strongest in the Middle East, while South African and Egyptian banks are the leaders in Africa
Qatar National Bank, First Abu Dhabi Bank and Standard Bank Group remained as the top three largest banks by assets in the Middle East and Africa. Total assets of Qatar National Bank surpassed that of First Abu Dhabi Bank and Standard Bank Group by 17% and 60%, respectively. These findings were revealed by the Middle East and Africa 200 (MEA 200) 2019, the evaluation of the 200 largest banks in the Middle East and Africa for the financial year 2018.
This year, the evaluation covers banks from 16 countries, namely Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE), Algeria, Egypt, Ghana, Kenya, Mauritius, Morocco, Nigeria and South Africa, and ranks them according to both asset size and overall strength.
Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, tops the annual ranking of the strongest banks in the Middle East. Meanwhile, South Africa-based FirstRand emerged as the strongest bank in Africa. The rankings are based on a detailed and transparent scorecard that evaluates commercial banks on six areas of balance sheet financial performance: ability to scale, balance sheet growth, risk profile, profitability, asset quality and liquidity.
The combined total assets of the banks under the MEA200 evaluation increased by 1.6% year-on-year to $3.54 trillion in 2018 from 2017 and the combined total net profits were up by 5.9% to $56.4 billion. The top 20 largest banks by assets in the region included five Saudi banks, four South African banks, four UAE banks, two Egyptian banks, two Kuwaiti banks and one each from Jordan, Morocco and Qatar. Egypt and UAE have the highest representation in the MEA list, with 20 banks coming from each of the two countries. Meanwhile, UAE and Saudi Arabia hold the highest combined bank assets. The combined assets of banks in UAE and Saudi Arabia, South Africa and Qatar on the list accounted for 60.2% of total assets in the Middle East and Africa. The total assets of banks in Algeria, Ghana, and Mauritius accounted for less than 1%.
Improved profitability and strong capitalisation
The overall profitability of banks in the Middle East improved marginally in 2018. Banks’ operational efficiencies improved, reflected by the fall in the weighted average cost to income ratio of the 100 largest banks in the region from 38% in the previous year to 36.9%. Qatari banks enjoyed the lowest average cost to income ratio, while the ratio for banks in Jordan and Kuwait improved the most. The weighted average return on assets (ROA) went up to 1.65% in 2018 from 1.59% in 2017, and the average return on equity (ROE) was higher at 12.6% from12%. The average ROA of Saudi banks on the list improved further to 2.3%, the highest in the region.
Meanwhile, Middle Eastern banks remained well-capitalised, with capital adequacy ratio (CAR) averaging 18.3% and Tier 1 capital ratio averaging 16.8% in 2018. Despite the slight decline, the average CAR of Saudi banks remained the highest in the region, at 20.3% in 2018, while the average CAR for banks in Jordan stood at only 16.2%. Banks in Qatar, Lebanon and Oman have seen an increase in their average CAR. Despite the challenging operating environment, the overall asset quality of banks in the region stayed relatively sound. Nevertheless, the overall balance sheet growth was weak in 2018, with banks registering the average loan growth and deposit growth of 2.7% and 4.5%, respectively.
With the weighted average strength score of 3.93 and 3.76 out of five, banks in Saudi Arabia and UAE remain the strongest. Saudi banks have continued to deliver robust financial performance, taking top five spots in the top 10 strongest banks list in the region. Al Rajhi bank, the strongest bank in the region, showed good performance in profitability, especially in ROA and cost to income ratio, and maintained healthy asset quality and robust capitalisation and liquidity.
On the contrary, the average strength scores for banks in Bahrain and Lebanon are lower than other Middle Eastern countries under evaluation. In addition to subdued balance sheet growth, banks in Bahrain and Lebanon posted much weaker profitability and asset quality than their regional peers amid the challenging operating environment. On average, Lebanese banks recorded a 9% YoY fall in net profit in 2018, and their ROA was weakened to 0.9%, the lowest in the region, mainly due to lower credit demand and rising costs of funds, along with the imposition of added taxations on banks.
South African and Egyptian banks strongest in Africa
Meanwhile, the top 10 strongest banks in Africa included four South African banks, three Egyptian banks, two banks from Mauritius and one bank from Morocco. Banks in South Africa and Egypt achieved the highest weighted average strength score at 3.43 and 3.16 out of five, respectively.
The balance sheet growth in the South African banking sector accelerated in 2018. South African banks maintained adequate capitalisation and liquidity and sound asset quality. However, their average cost to income ratio stood at a high level of 58.1%, only lower than that of Nigeria. FirstRand, the strongest bank in Africa, posted lower cost to income ratio and gross non-performing loan (NPL) ratio compared to its South African peers.
Egyptian banks maintained solid liquidity buffers, and their average loan to deposit ratio reached only 42.5%. Their balance sheet growth decelerated in 2018, while overall capital levels increased slightly. The average cost to income ratio of Egyptian banks on the list increased from 27.5% in the prior year to 34.3%, but still the lowest among banks in the region.
Looking forward, most banking systems in the region are expected to remain resilient, despite challenges. Some changes in the rankings are expected in the near future, as the recent mergers and acquisitions drive in the region is expected to create larger and stronger banks. In Africa, some weaker banks have been acquired following the consolidations., which has contributed to more resilient banking systems. In the face of subdued growth, rapidly changing technology and rising regulatory requirements, more consolidation is expected, as mergers will enhance profitability and boost competitiveness.
Categories: Asian Banker 500
Keywords: Largest Banks, Bank Rankings, Bank Evaluation