Middle East banks are generally strong, but will need to grow their books of quality loans to improve profitability.
Our 2018 ranking of the top 50 safest Middle East banks is largely comprised of entities domiciled in the Gulf Cooperation Council (GCC) countries. These economies are dealing with the outlook for lower economic growth, combined with the strain from low oil prices in recent years. Consequently, the banking sector is faced with the challenge to grow loan portfolios and maintain profitability, while managing potential asset-quality deterioration and rising credit costs.
Many of the banks included in our rankings dominate their respective markets, and there is a high concentration of banking system assets. The three largest GCC banks account for approximately 65% of system assets, while in the UAE alone, the five largest banks have captured 60% of assets. UAE banks are well represented in our rankings, with six banks in the top 15 slots, and 12 names in the top 50. Generally, the UAE banks are well capitalized (above the central bank requirement) and exhibit sustained profitability but weakening asset quality.
Banks in Saudi Arabia are benefiting from an economy that has been given a lift from government stimulus, which may result in positive growth in 2018. Many Saudi bank balance sheets are asset sensitive, with loans carrying variable rates. That will boost net interest income as interest rates rise. Saudi Arabia, Bahrain and the UAE mirror US monetary policy; they have followed the Federal Reserve’s lead and raised rates.
The economies of GCC members UAE, Kuwait and Saudi Arabia are comparatively stronger than Bahrain, Oman and Qatar. Qatar is contending with added financial stress from an economic boycott by Saudi Arabia, the UAE, Egypt and Bahrain since June 2017 that is causing significant disruption. This is weighing on the Qatari banks and has resulted in weaker profitability, deteriorating asset quality and liquidity pressure from deposit outflows. The Qatari government has countered the outflows by injecting deposits in the system, including $40 billion during 2017.
The impact of lower oil prices on the banking sector is considerable and has pressured bank liquidity, as a drop in oil-export revenue prompted governments to draw on their accounts to maintain stimulus spending. By some estimates, GCC governments account for 20% to 40% of deposits in GCC banks and there is limited wholesale funding, with most bank liquidity coming from customer deposits.
With the adoption of the IFRS 9 financial reporting standard in early 2018, banks must focus on originating high-quality loans or face higher costs when taking on added risk. While near-term loan growth will be challenging, long-term infrastructure projects will involve higher capital spending and present considerable opportunities for loan growth in the sector. These programs include: UAE Expo 2020, World Cup Qatar 2022, the Saudi National Transformation Program and Kuwait 2035.
While bank mergers are infrequent, there are some notable transactions—especially the merger of Saudi British Bank and Alawwal Bank, which will create the third-largest Saudi bank. In the UAE, a proposed three-way merger of Abu Dhabi Commercial Bank with Union National Bank and Al Hilal Bank would create the second-largest UAE bank, with $110 billion in assets.
The catalyst for many of the changes in the composition of our rankings was the Fitch downgrade of the government of Qatar and the subsequent downgrades of all Qatari banks—with the exception of Qatar National Bank, which held steady in 3rd place. Fitch and S&P also downgraded Qatar’s Doha Bank, which fell 18 places, to 33rd. These downgrades gave a relative lift to other banks: Kuwait’s Boubyan Bank rose to 18th place, and a range of Saudi banks rose three places.
|The Middle East’s Top 50 Safest Banks|
|Rank||Company Name||Country||Fitch||Moody’s||S&P||Total Score||Assets ($ Mil.)||Statement Date|
|1||First Abu Dhabi Bank||UAE||AA—||Aa3||AA—||21||185,156||31-Dec-2017|
|2||National Bank of Kuwait||Kuwait||AA—||Aa3||A+||20||86,279||31-Dec-2017|
|3||Qatar National Bank||Qatar||A+||Aa3||A||18||222,824||31-Dec-2017|
|4||Abu Dhabi Commercial Bank||UAE||A+||A1||A||17||72,159||31-Dec-2017|
|5||Kuwait Finance House||Kuwait||A+||A1||NR||17||57,524||31-Dec-2017|
|6||Union National Bank||UAE||A+||A1||NR||17||29,277||30-Jun-2017|
|7||Al Hilal Bank PJSC||UAE||A+||A1||NR||17||12,195||31-Dec-2017|
|8||Abu Dhabi Islamic Bank||UAE||A+||A2||NR||15.5||33,568||31-Dec-2017|
|9||Al Ahli Bank of Kuwait||Kuwait||A+||A2||NR||15.5||14,455||31-Dec-2017|
|10||Ahli United Bank||Kuwait||A+||A2||NR||15.5||12,148||31-Dec-2017|
|11||Qatar Islamic Bank||Qatar||A||A1||A—||15||41,312||31-Dec-2017|
|13||Bank Leumi Le-Israel||Israel||A||A2||A—||14||130,037||31-Dec-2017|
|16||Commercial Bank of Kuwait||Kuwait||A+||A3||NR||14||14,564||31-Dec-2017|
|19||Qatar International Islamic Bank||Qatar||A||A2||NR||14||12,807||31-Dec-2017|
|21||Inernational Bank of Qatar||Qatar||A||A2||NR||14||9,090||31-Dec-2016|
|22||The National Commercial Bank||Saudi Arabia||A—||A1||BBB+||13||118,364||31-Dec-2017|
|23||Al Rajhi Bank||Saudi Arabia||A—||A1||BBB+||13||91,498||31-Dec-2017|
|24||SAMBA Financial Group||Saudi Arabia||A—||A1||BBB+||13||60,696||31-Dec-207|
|25||Banque Saudi Fransi||Saudi Arabia||A—||A1||BBB+||13||51,448||31-Dec-2017|
|26||Saudi British Bank||Saudi Arabia||A—||A1||BBB+||13||50,031||31-Dec-2017|
|28||Dubai Islamic Bank PJSC||UAE||A||A3||NR||12.5||56,457||31-Dec-2017|
|29||The Commercial Bank||Qatar||A||A3||NR||12.5||38,035||31-Dec-2017|
|30||Al Khalij Commercial Bank||Qatar||A||A3||NR||12.5||15,902||31-Dec-2017|
|31||Riyard Bank||Saudi Arabia||A—||A2||BBB+||12||57,675||31-Dec-2017|
|34||Arab National Bank||Saudi Arabia||BBB+||A2||BBB+||11||45,787||31-Dec-2017|
|36||Sharjah Islamic Bank||UAE||BBB+||A3||NR||10||10,426||31-Dec-2017|
|37||Alawwal Bank||Saudi Arabia||BBB+||A3||NR||9.5||26,632||31-Dec-2017|
|38||Commercial Bank of Dubai||UAE||A—||Baa1||NR||9.5||19,173||31-Dec-2017|
|39||Saudi Investment Bank||Saudi Arabia||BBB+||A3||BBB||9||25,012||31-Dec-2017|
|40||Israel Discount Bank||Israel||NR||Baa1||BBB+||8||63,722||31-Dec-2017|
|41||Gulf International Bank||Bahrain||BBB-||A3||NR||8||25,471||31-Dec-2017|
|42||Bank Aljazira||Saudi Arabia||BBB+||Baa1||NR||8||18,210||31-Dec-2017|
|44||National Bank of Fujairah||UAE||NR||Baa1||BBB+||8||9,980||31-Dec-2017|
|45||Ahli United Bank BSC||Bahrain||BBB—||NR||BBB||3.5||33,242||31-Dec-2017|
|46||HSBC Bank Oman SAOG||Oman||BBB||Baa3||NR||3.5||6,070||31-Dec-2017|
|48||Bank Muscat SAOG||Oman||BBB—||Baa3||BB||0||28,997||31-Dec-2017|
|50||National Bank of Oman||Oman||BB+||Baa3||NR||—1||9,028||31-Dec-2017|
|Asset figures from Fitch, Moody’s, and company reports. Ratings valid as of Aug. 17, 2018.|