Despite the tightening of monetary policy by the US Federal Reserve, the banking sector in the Gulf Cooperation Council (GCC) countries experienced sustained growth in lending during the second quarter of 2023, according to a recent report by Kamco Invest.
This growth was largely driven by a vibrant projects market and governmental efforts to counteract the adverse effects of increased interest rates.
The Federal Reserve has aggressively raised its key interest rate from 0.5% in March 2022 to 5.5% in July 2023, the highest in more than 20 years, in a bid to curb inflation within the US economy.
Despite this, the GCC banking sector has continued to thrive, buoyed by an influx of new large-scale projects and reform initiatives across the region, which have significantly bolstered corporate lending.
GCC-listed banks reported a record distribution of $1.9 trillion in gross loans by the end of Q2 2023. The report highlighted a quarter-on-quarter increase of 1.9%, or $36.3 billion, with growth observed across all GCC markets.
Net loans also saw a rise, albeit slightly more modest at 1.7%, totaling $1.8 trillion.
Saudi Arabia emerged as a notable performer, with a 2.5% growth in outstanding credit facilities during the quarter, significantly ahead of Kuwait, Qatar, Bahrain, and Oman, which all recorded growth rates below 1%.
This surge in Saudi lending was primarily attributed to the utilities, real estate, and trade sectors, which each saw over 5% quarter-on-quarter growth in the second quarter of 2023.
On the liquidity front, listed GCC banks experienced a 1% quarter-on-quarter increase in customer deposits, reaching $2.3 trillion. This increase was largely due to higher deposits in most markets, despite declines in Qatar and Kuwait. Consequently, the GCC’s aggregate loan-to-deposit ratio edged up to 79% by the end of the second quarter.
Kamco’s report also noted a quarter-on-quarter increase of 3.5% in total net income, reaching $13.7 billion. This rise was supported by gains in both net interest income and non-interest income, with higher interest rates contributing to the growth in net interest income during the quarter.