Dubai: Eight leading Qatari banks reported an aggregate net profit of QAR11.8 billion ($3.2 billion), up 12 per cent from the year-earlier and 1 per cent higher than in the first-half of 2019. Growth in net profit was consistent across the banks and largely driven by an increase in both net interest and non-interest income, according to rating agency Moody’s.
Loan-loss provisions remained elevated while costs were broadly flat. The recovery of oil prices and the resolution of Qatar’s diplomatic dispute with some of its neighbours are expected to support the banks’ full-year performance in 2021.
“We expect bottom-line profitability to remain stable in the second half of the year and relatively strong compared with regional peers,” said Nitish Bhojnagarwala, Vice President and Senior Credit Analyst at Moody’s.
Stable net interest margins
While net interest income increased, net interest margins (NIMs) remained broadly stable at 2.2 per cent, reflecting strong loan growth of 9 per cent year over year. Stable NIMs reflected a decline in asset yields in the current lower interest rate environment – to 4 per cent from 4.5 per cent – that was fully offset by a decline in cost of funds to 2.1 per cent from 2.7 per cent.
The banks improved their operating efficiency in 2020 through cost-control measures such as reducing staff and travel expenses, easing pressure on their bottom-line profit. While the benefits of the cost-control have been accruing this year, aggregate operating expenses for the system increased by 5 per cent in the first-half of the year.
Despite a modest overall increase in costs, the cost-to-income ratio for the eight banks fell to 24.1 per cent in the first-half of 2021 from 25.7 per cent a year earlier.
The banks’ provisioning increased to QAR5.5 billion from QAR4.1 billion a year earlier, and consumed around 31 per cent of pre-provision income compared with 26 per cent previously.
Provisions in 2021 also more than doubled compared with the same period in 2019. Actions taken to contain the pandemic, the global economic shock and low oil prices weighed on borrowers’ repayment capacity.