Lenders in the GCC have been rapidly consolidating as they seek to remain competitive, KPMG said and noted the drive will continue in 2020 across the region.

In 2019, most GCC countries experienced mergers, or talks to merge, both in the conventional and Islamic banking sector thus creating larger, stronger and more resilient financial institutions, KPMG said in its latest report titled ‘New Age Banking’.

One of the mergers announced during 2019 was a crossborder merger between a bank from Kuwait and Bahrain.

“We expect that this consolidation drive will continue in 2020 across the region, with numerous talks or potential further transactions,” KPMG noted.

With the challenging political and economic environment and increasing regulatory requirements, banks will continue pursuing a more measured approach in their lending activities and look to focus on the higher-end customer base, it said.

Credit growth is not expected to pick up significantly from last year given the economic impact of Covid-19 and significant fall in oil prices. “In fact we expect banks to explore possible non-performing loan sales to manage their NPL ratios,” KPMG noted.

The upward trend in profitability of GCC banks is expected to continue in 2020, although not necessarily at the double digit levels witnessed in 2019. The growth is likely to be modest and tempered by slower loan growth, shrinking profit margins and rising loan provisioning under the expected credit loss regime mainly driven by the economic impact of Covid-19.

“Given the margin pressures banks have experienced across the region in 2019, we expect cost and operational efficiencies to remain high on the management agenda. Banks are likely to look at more sophisticated ways in which costs can be managed through the use of robotics, analytics and fintech amongst others. We do not expect capital and fundraising activity to pick up in 2020, given the uncertainties resulting from Covid-19 and the fact that regulators are relaxing the minimum capital adequacy and liquidity requirements in line with more developed market for the short term. Some banks will however look to tap into bond markets to take advantage of the low interest rate environment in the second half of the year,” KPMG noted.

The overall long-term outlook for the GCC banking sector has moved from positive to stable in KPMG’s view.

“Banks are well positioned to weather the current economic and political challenges, given the expectation of continued government support and committed infrastructure investment, which will be somewhat offset by uncertainties arising from oil prices fluctuations and the Covid-19 impact, resulting in stable growth in the sector,” KPMG said.

Source MENA FN