Low provisioning costs raises banking outlook for Kuwait and Egypt

Margins in Saudi Arabia, the region's largest economy, have been in an expansionary phase

Kuwaiti banks are expected to see healthy income levels following the central bank's relaxation of precautionary provision requirements. AFP

The aggregate earnings of banks in the Middle East and North Africa in the second quarter is expected to grow 9 per cent year-on-year as lower provisioning for bad loans helps profitability.

Lenders in Kuwait and Egypt in particular are expected to outpace the earnings growth of their counterparts in other parts of the broader region, EFG Hermes, the biggest listed investment bank in the region, said on in its latest note to investors.

"We factor in another quarter of good net income growth for Kuwait banks at more than 12 per cent year-on-year on lower provisioning costs, and as the CBK [Central Bank of Kuwait] has started to relax precautionary provision requirements; and Egypt at more than 15 per cent year-on-year on volume growth,” EFG Hermes said.

Banks in the UAE, the second-biggest GCC economy, are also expected to record 15 per cent year-on-year growth for the three-month period, although the higher rate of growth will be partly driven by one-off gains from the part sale of a Network International stake by Emirates NBD during the first quarter of this year, EFG noted.

Mena banks' aggregate earnings recorded 8 per cent growth in the first quarter of 2019, according to the research note.

In Saudi Arabia, the region’s biggest banking market, margins have been on the rise thanks to the US Federal Reserve's increased tightening, driving earnings growth for Saudi banks.

"Saudi banks are still benefiting from margin expansion," EFG said.

Elsewhere in the region EFG expects broadly flat margins quarter-on-quarter on lower funding cost pressures for UAE banks due to the falling inter-bank lending rate Eibor while, for Kuwait banks, it also expects broadly stable deposit costs, it said in its report.

UAE banks, on the other hand, trade at a 25 per cent price to earnings ratio - a measure for stock valuations - discount to the rest of the GCC's banks.

In Oman EFG Hermes expects mid single-digit loan growth driven by government-backed financing.