Qatar's banks had the highest cover of 98.5% against Stage 3 bad loans in the Gulf Co-operation Council or GCC during the first quarter of 2022, according to Kamco Invest, a regional financial powerhouse.
The GCC average coverage was 83.6% against Stage 3 bad loans, said Kamco Invest in a report.
Bahraini banks were at 72.2% followed by Omani and the UAE-listed banks at 63.5% and 63.2%, respectively during the review period.
The average share of bad loans (Stage 3 loans) on the GCC banks’ loan books remained stable quarter-on-quarter (q-o-q) at 4%.
Non-performing loans for the UAE banks continued to remain the highest in the GCC at 5.9% of aggregate gross loans at the end of Q1-2022, which was 20bps (basis points) below Q4-2021 share.
On the other hand, Kuwaiti banks reported the lowest bad loans on their books at 1.6% at the end of Q1-2022, in line with Q4-2021.
The Stage 2 provision cover at the GCC level (excluding Saudi Arabian banks) stood at 14.2% in Q1-2022, a slight increase from 13.7% in Q4-2021 with the UAE showing the biggest cover of 15.9% while Qatari banks reported the smallest cover at this stage at 6.2%.
Kamco Invest said the marginal increase in net interest income during Q1-2022 and an equivalent increase in average earning assets during the last four quarters resulted in flat net interest margin (NIM) for the aggregate GCC banking sector.
NIM at 2.8% remained at one of the lowest levels over the last few quarters owing to benchmark rate cuts implemented last year by governments globally in order to boost economic activity and investments.
In addition, the effects of the recent rate hikes is expected to be reflected starting from Q2-2022.
NIM remained relatively stable across the board in the GCC during Q1-2022 as compared to the previous quarter. The NIM continued to remain the highest in the case of Saudi Arabian banks at 3.12% during Q1-2022 and it was the only market in the GCC to report NIM of over 3% in the GCC.
Meanwhile, the report said expectations of aggressive rate hike by the US Fed this year, followed by higher rates next year is expected to have a positive impact on NIMs of the GCC banks.
However, the impact of rate hikes is reflected with a lag of three to four quarters. In addition, the extent to replication of rate hikes by the GCC central banks against US Fed Fund rate hikes also affects the trajectory of NIMs in the GCC, according to the report.
Nevertheless, despite some GCC central banks skipping rate hikes, the overall impact of a fed fund rate hike is "positive" on the aggregate NIM reported by the GCC banks.
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