In this year’s The Asian Banker Strongest Banks By Balance Sheet evaluation, Saudi Arabia-based Al Rajhi Bank has emerged as the strongest bank in the Middle East. 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 recorded 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%.
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. 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%. 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. 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%).
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Notes: (1) 5 = Highest score, 0 = Lowest score. (2) * for National Commercial Bank. Scores are only shown to one decimal place, but rankings reflect full information.