Middle East banks are generally strong, but will need to grow their books of quality loans to improve profitability.

Author: David Sanders

Our 2018 ranking of the top 50 safest Middle East banks is largely comprised of entities domiciled in the Gulf Cooperation Council (GCC) countries. These economies are dealing with the outlook for lower economic growth, combined with the strain from low oil prices in recent years. Consequently, the banking sector is faced with the challenge to grow loan portfolios and maintain profitability, while managing potential asset-quality deterioration and rising credit costs.

Many of the banks included in our rankings dominate their respective markets, and there is a high concentration of banking system assets. The three largest GCC banks account for approximately 65% of system assets, while in the UAE alone, the five largest banks have captured 60% of assets. UAE banks are well represented in our rankings, with six banks in the top 15 slots, and 12 names in the top 50. Generally, the UAE banks are well capitalized (above the central bank requirement) and exhibit sustained profitability but weakening asset quality.

Banks in Saudi Arabia are benefiting from an economy that has been given a lift from government stimulus, which may result in positive growth in 2018. Many Saudi bank balance sheets are asset sensitive, with loans carrying variable rates. That will boost net interest income as interest rates rise. Saudi Arabia, Bahrain and the UAE mirror US monetary policy; they have followed the Federal Reserve’s lead and raised rates. 

The economies of GCC members UAE, Kuwait and Saudi Arabia are comparatively stronger than Bahrain, Oman and Qatar. Qatar is contending with added financial stress from an economic boycott by Saudi Arabia, the UAE, Egypt and Bahrain since June 2017 that is causing significant disruption. This is weighing on the Qatari banks and has resulted in weaker profitability, deteriorating asset quality and liquidity pressure from deposit outflows. The Qatari government has countered the outflows by injecting deposits in the system, including $40 billion during 2017. 

The impact of lower oil prices on the banking sector is considerable and has pressured bank liquidity, as a drop in oil-export revenue prompted governments to draw on their accounts to maintain stimulus spending. By some estimates, GCC governments account for 20% to 40% of deposits in GCC banks and there is limited wholesale funding, with most bank liquidity coming from customer deposits. 

With the adoption of the IFRS 9 financial reporting standard in early 2018, banks must focus on originating high-quality loans or face higher costs when taking on added risk. While near-term loan growth will be challenging, long-term infrastructure projects will involve higher capital spending and present considerable opportunities for loan growth in the sector. These programs include: UAE Expo 2020, World Cup Qatar 2022, the Saudi National Transformation Program and Kuwait 2035. 

While bank mergers are infrequent, there are some notable transactions—especially the merger of Saudi British Bank and Alawwal Bank, which will create the third-largest Saudi bank. In the UAE, a proposed three-way merger of Abu Dhabi Commercial Bank with Union National Bank and Al Hilal Bank would create the second-largest UAE bank, with $110 billion in assets.

The catalyst for many of the changes in the composition of our rankings was the Fitch downgrade of the government of Qatar and the subsequent downgrades of all Qatari banks—with the exception of Qatar National Bank, which held steady in 3rd place. Fitch and S&P also downgraded Qatar’s Doha Bank, which fell 18 places, to 33rd. These downgrades gave a relative lift to other banks: Kuwait’s Boubyan Bank rose to 18th place, and a range of Saudi banks rose three places.


The Middle East's Top 50 Safest Banks

Rank

Company Name

Country

Fitch

Moody’s

S&P

Total Score

Assets ($ Mil.)

Statement Date

1

First Abu Dhabi Bank

UAE

AA—

Aa3

AA—

21

185,156

31-Dec-2017

2

National Bank of Kuwait

Kuwait

AA—

Aa3

A+

20

86,279

31-Dec-2017

3

Qatar National Bank

Qatar

A+

Aa3

A

18

222,824

31-Dec-2017

4

Abu Dhabi Commercial Bank

UAE

A+

A1

A

17

72,159

31-Dec-2017

5

Kuwait Finance House

Kuwait

A+

A1

NR

17

57,524

31-Dec-2017

6

Union National Bank

UAE

A+

A1

NR

17

29,277

30-Jun-2017

7

Al Hilal Bank PJSC

UAE

A+

A1

NR

17

12,195

31-Dec-2017

8

Abu Dhabi Islamic Bank

UAE

A+

A2

NR

15.5

33,568

31-Dec-2017

9

Al Ahli Bank of Kuwait

Kuwait

A+

A2

NR

15.5

14,455

31-Dec-2017

10

Al Ahli Bank of Kuwait

Kuwait

A+

A2

NR

15.5

12,148

31-Dec-2017

11

Quatar Islamic Bank

Qatar

A

A1

A—

15

41,312

31-Dec-2017

12

Bank Hapoalim

Israel

A

A2

A—

14

131,071

31-Dec-2017

13

Bank Leimi Le-Israel

Israel

A

A2

A—

14

130,037

31-Dec-2017

14

Emirates NBD

UAE

A+

A3

NR

14

128,080

31-Dec-2017

15

Gulf Bank

Kuwait

A+

A3

A—

14

18,835

31-Dec-2017

16

Commercial Bank of Kuwait

Kuwait

A+

A3

NR

14

14,564

31-Dec-2017

17

Barwa Bank

Qatar

A

A2

NR

14

13,362

31-Dec-2017

18

Boubyan Bank

Kuwait

A+

A3

NR

14

13,158

31-Dec-2017

19

Qatar International Islamic Bank

Qatar

A

A2

NR

14

12,807

31-Dec-2017

20

Ahli Bank

Qatar

A

A2

NR

14

10,957

31-Dec-2017

21

Inernational Bank of Qatar

Qatar

A

A2

NR

14

9,090

31-Dec-2016

22

The National Commercial Bank

Saudi Arabia

A—

A1

BBB+

13

118,364

31-Dec-2017

23

Al Rajhi Bank

Saudi Arabia

A—

A1

BBB+

13

91,498

31-Dec-2017

24

SAMBA Financial Group

Saudi Arabia

A—

A1

BBB+

13

60,696

31-Dec-207

25

Banque Saudi Fransi

Saudi Arabia

A—

A1

BBB+

13

51,448

31-Dec-2017

26

Saudi British Bank

Saudi Arabia

A—

A1

BBB+

13

50,031

31-Dec-2017

27

Burgan Bank

Kuwait

A+

A3

BBB+

13

24,574

31-Dec-2017

28

Dubai Islamic Bank PJSC

UAE

A

A3

NR

12.5

56,457

31-Dec-2017

29

The Commercial Bank

Qatar

A

A3

NR

12.5

38,035

31-Dec-2017

30

Al Khalij Commercial Bank

Qatar

A

A3

NR

12.5

15,902

31-Dec-2017

31

Riyard Bank

Saudi Arabia

A—

A2

BBB+

12

57,675

31-Dec-2017

32

Mashreqbank PSC

UAE

A

Baa1

NR

12

34,088

31-Dec-2017

33

Doha Bank

Qatar

A

A3

BBB+

12

25,686

31-Dec-2017

34

Arab National Bank

Saudi Arabia

BBB+

A2

BBB+

11

45,787

31-Dec-2017

35

Warba Bank

Kuwait

A+

Baa2

NR

11

5,876

31-Dec-2017

36

Sharjah Islamic Bank

UAE

BBB+

A3

NR

10

10,426

31-Dec-2017

37

Alawwal Bank

Saudi Arabia

BBB+

A3

NR

9.5

26,632

31-Dec-2017

38

Commercial Bank of Dubai

UAE

A—

Baa1

NR

9.5

19,173

31-Dec-2017

39

Saudi Investment Bank

Saudi Arabia

BBB+

A3

BBB

9

25,012

31-Dec-2017

40

Israel Discount Bank

Israel

NR

Baa1

BBB+

8

63,722

31-Dec-2017

41

Gulf International Bank

Bahrain

BBB-

A3

NR

8

25,471

31-Dec-2017

42

Bank Aljazira

Saudi Arabia

BBB+

Baa1

NR

8

18,210

31-Dec-2017

43

RAKBank 

UAE

BBB+

Baa1

NR

8

13,216

31-Dec-2017

44

National Bank of Fujairah

UAE

NR

Baa1

BBB+

8

9,980

31-Dec-2017

45

Ahli United Bank BSC

Bahrain

BBB—

NR

BBB

3.5

33,242

31-Dec-2017

46

HSBC Bank Oman SAOG

Oman

BBB

Baa3

NR

3.5

6,070

31-Dec-2017

47

Bank ABC

Bahrain

BBB—

NR

BBB—

2

29,499

31-Dec-2017

48

Bank Muscat SAOG

Oman

BBB—

Baa3

BB

0

28,997

31-Dec-2017

49

Bank Dohfar

Oman

BB+

Baa3

NR


        —1

11,045

31-Dec-2017

50

National Bank of Oman

Oman

BB+

Baa3

NR

—1

9,028

31-Dec-2017

Asset figures from Fitch, Moody’s, and company reports. Ratings valid as of Aug. 17, 2018.