Dubai-based Emirates NBD Bank booked $6.32 billion of net interest income in 2022. Source: Tom Dulat/Getty Images Entertainment via Getty Images

Strong lending income drove annual profits higher at the largest banks in the Gulf Cooperation Council in 2022, with further interest rate benefits likely to come in 2023.

In 2022, Saudi National Bank, Al Rajhi Banking & Investment Corp., First Abu Dhabi Bank PJSC, Qatar National Bank QPSC and Emirates NBD Bank PJSC all exceeded their 2021 net income, with Qatar National Bank and Emirates NBD returning to close to pre-pandemic levels. Saudi National Bank, or SNB, the largest Saudi Arabian bank, booked the highest income, at $4.95 billion, and the highest year-over-year rise, according to S&P Global Market Intelligence data.

The rebound was expected, with analysts at S&P Global Ratings citing the benefits of aggressive monetary policy tightening and economic recovery. Government-sponsored projects are also a driver of lending growth, particularly in Saudi Arabia, Ratings said in a November 2022 report.

Qatar National Bank, also known as QNB, the largest bank by assets across the Middle East and Africa, would have generated a higher annual profit if not for losses related to hyperinflation in Turkey.

Lending income

Net interest income — the difference between interest revenues earned from lending activities and interest paid to depositors — primarily drove the recovery. In the first nine months of 2022 alone, the aggregate net interest income of all Gulf Cooperation Council, or GCC, banks hit $40.52 billion, Market Intelligence previously reported.

The five sampled banks booked a combined net interest income of $31.07 billion in 2022, with QNB reporting the highest at nearly $8 billion. SNB generated $7 billion, while Dubai-based Emirates NBD booked $6.32 billion.

As most GCC currencies are pegged to the dollar, more rate hike benefits are expected in 2023. The U.S. Federal Reserve is set to continue raising interest rates, albeit at a slower pace. Banks are also expected to benefit from the structure of their funding profiles and contribution from non-interest-bearing deposits, Ratings said in its report.

Risk costs normalization

In its November 2022 report, Ratings projected that the cost of risk at the region's top 45 banks will normalize to about 100 basis points and that no significant increase is expected.

Four of the sampled banks booked lower risk costs, with the only exception being QNB, where risk costs increased to 109 bps. The largest decline was at SNB, with risk costs declining to 32 bps from 81 bps.

A key risk for banks remains in their exposures to riskier countries such as Turkey and Egypt, according to Ratings. Nevertheless, banks in the region were expected to enter 2023 on "solid footing," the agency said.

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