TGB Regional Banking Monitor

MENA Region — Q2 2024

Period: April – June 2024  |  Published: Q3 2024  |  RBM-003

Quarter Snapshot

The second quarter of 2024 was defined by resilient credit expansion across the Gulf Cooperation Council, the aftermath of a transformative monetary shock in Egypt, and the onset of a long-awaited easing cycle in Morocco. With the US Federal Reserve maintaining the federal funds rate at 5.25–5.50% throughout the quarter, GCC central banks anchored to the dollar peg were similarly constrained, sustaining a high-rate environment that continued to support elevated net interest income for regional lenders. The ten largest listed banks in both the UAE and Saudi Arabia reported higher quarterly profits against this backdrop, whilst North African and Levant markets navigated more complex domestic conditions.

UAE banking liquid assets surpassed AED 800 billion — up 20.2% year-on-year. Saudi Arabia's top ten banks earned SAR 19.5 billion in aggregate net income, and Egypt's banking sector posted a return on equity of 32.2% as at March 2024, even as the pound lost approximately 38% of its value in a single day following the Central Bank of Egypt's 600 basis point emergency hike in March.

Regional Overview

The MENA banking sector entered Q2 2024 on broadly sound footing. The GCC sub-region — comprising the UAE, Saudi Arabia, Kuwait, Qatar, Bahrain, and Oman — continued to generate strong earnings underpinned by elevated interest rates, healthy credit demand, and diversifying revenue streams. North Africa presented a more divergent picture: Morocco commenced monetary easing following a sharp deceleration in inflation, whilst Egypt undertook the most consequential monetary policy realignment in its recent history.

Geopolitical pressures — particularly the ongoing conflict in Gaza and broader Middle East tensions — weighed on investor sentiment but did not materially impair banking sector fundamentals across the monitored countries. In Jordan, credit facilities grew 2.7% year-on-year to end-April 2024 (CBJ). Iraq continued its longer-term banking sector modernisation trajectory, with non-performing loan ratios declining year-on-year even as the central bank maintained its restrictive 7.50% policy rate.

Across the region, the dominant themes of Q2 2024 were: sustained credit outpacing deposit mobilisation in the GCC (leading to tighter loan-to-deposit ratios); high profitability in Egypt, where sector return on equity reached 32.2% in March 2024; Morocco's first rate cut since 2020; and continued work on open banking frameworks.

Macroeconomic Conditions

The macroeconomic backdrop for MENA banking in Q2 2024 was shaped by three primary forces: continued tight US monetary policy (the Fed held at 5.25–5.50%), OPEC+ production restraint depressing GCC hydrocarbon revenues in nominal terms, and Egypt's landmark structural adjustment. These forces affected banking conditions unevenly across the region.

In the GCC, non-oil economic diversification continued to drive credit demand. The CBUAE raised its 2024 real GDP growth projection to 4.0% in its September 2024 review, with non-hydrocarbon activity sustaining momentum through trade, tourism, and financial services. Saudi Arabia's headline real GDP contracted marginally (-0.3% to -0.4% year-on-year) owing to OPEC+ production cuts — the Kingdom announced a 500,000 barrels-per-day voluntary output cut in April 2023, a measure since extended through the end of 2025 — but the non-oil sector expanded 4.9%, providing a robust base for private sector banking activity.

Egypt's macroeconomic transformation in the first half of 2024 was the most consequential in the region. The Central Bank of Egypt's emergency 600 basis point rate hike on 6 March — accompanied by a managed float of the Egyptian pound — initiated a structural reset. The pound depreciated approximately 38% against the US dollar on the day of the float, with the rate moving from around EGP 30.9 to about EGP 49.5 per dollar. The IMF reached a staff-level agreement the same day to expand its Extended Fund Facility to $8 billion (approved by the Executive Board on 29 March), with a third review completed in July 2024. Whilst inflation remained elevated — consumer prices rose in the range of 27.5–32.5% year-on-year across Q2 2024 — annual urban inflation eased from 32.5% in April to 27.5% in June.

Banking Sector Performance

Aggregate banking sector performance across the ten monitored MENA markets was broadly positive in Q2 2024, with GCC lenders demonstrating particular strength. The high interest rate environment, whilst anticipated to reverse as the US Federal Reserve moved toward easing later in the year, continued to buoy net interest income across GCC banks maintaining dollar pegs. At the same time, asset quality improved in the UAE and Saudi Arabia.

The most notable cross-regional trend was the divergence in deposit mobilisation. UAE banks saw deposit growth decelerate sharply to 0.4% quarter-on-quarter, versus 5.1% in Q1 2024. Saudi banks similarly experienced a slowdown in deposit accumulation (+2.3% QoQ), whilst loan books grew faster (+3.2%), pushing the sector loan-to-deposit ratio toward 97.8%.

Note: UAE and KSA figures based on top 10 listed banks (A&M Banking Pulse Q2 2024). Egypt RoE as at March 2024 (CBE data). Iraq NPL as at Q1 2024 (CBI data). Morocco NPL ratio and CAR (solvency ratio) as at end-2023 (Bank Al-Maghrib). n/a = no verified figure for the period. All data Q2 2024 or latest available within the quarter.

Country-by-Country Snapshot

United Arab Emirates

Aggregate net income for the top ten listed banks reached AED 21.5 billion, up 2.9% quarter-on-quarter, supported by net interest income growth of 2.0% despite stable benchmark rates, and a 35.4% decline in impairment charges. Return on equity improved by 48 basis points to 20.8%, whilst the cost of risk fell to 0.3%. The CBUAE maintained its Base Rate at 5.40% throughout the quarter, in line with the US Federal Reserve's hold. The sector's gross credit expanded 8.0% year-on-year to AED 2,101 billion, whilst deposits grew 13.0% to AED 2,693 billion. Liquid assets exceeded AED 800 billion, a 20.2% year-on-year increase. In February 2024 the FATF removed the UAE from its list of jurisdictions under increased monitoring (the 'grey list'). Emirates NBD reported a one-third share of UAE credit card spend in H1 2024.

Saudi Arabia

The top ten listed banks generated SAR 19.5 billion in aggregate net income in Q2 2024, a 4.3% improvement over the previous quarter, driven primarily by lower impairment charges (-27.0% QoQ to SAR 1.8 billion) and robust net interest income growth (+2.5% QoQ). Return on equity rose 0.7 percentage points to 16.8%, whilst the non-performing loan ratio improved by four basis points to approximately 1.1%. The net interest margin contracted modestly to 2.94%, reflecting balanced yield-on-credit and cost-of-funds increases of 10 basis points each. Corporate and wholesale lending dominated, comprising 55.7% of the total SAR 2,666 billion loan book. SAMA maintained its repo rate at 6.00% throughout the quarter. Headline GDP contracted -0.3% to -0.4% year-on-year owing to OPEC+ production restraint, but the non-oil sector — the primary driver of private banking activity — expanded 4.9%, supporting demand for project finance and consumer credit.

Kuwait

Kuwait's banking sector maintained solid fundamentals through the quarter. The Central Bank of Kuwait held its discount rate at 4.25% in Q2 2024; the Kuwaiti dinar is pegged to an undisclosed basket of currencies rather than to the US dollar alone. The sector's gross NPL ratio ticked up modestly to 1.6% by June 2024, with an NPL coverage ratio of 267%. The domestic loan-to-deposit ratio edged to 98.7% during the quarter. Public sector project awards reached KD 748 million in Q2 — up 490% quarter-on-quarter and 43% year-on-year. The National Bank of Kuwait retained its leading position with an NPL ratio of approximately 1.1% and coverage exceeding 300%.

Qatar

Qatar Central Bank maintained all three policy rates unchanged at its 12 June 2024 Monetary Policy Committee meeting: the repo rate at 6.00%, the deposit rate at 5.75%, and the lending rate at 6.25%. Doha Bank reported a 10.3% year-on-year increase in net profit and a capital adequacy ratio of 19.71% as at June 2024. Qatar National Bank reported net profit of approximately $1.1 billion in Q2 2024.

Bahrain

The Central Bank of Bahrain held its one-week deposit rate at 6.25% throughout Q2 2024, consistent with its managed peg to the US dollar and alignment with GCC peers. The National Bank of Bahrain delivered H1 2024 net profit attributable to shareholders of BHD 46.6 million (approximately USD 123.6 million).

Egypt

Egypt dominated regional headlines in Q2 2024 following the Central Bank of Egypt's landmark 600 basis point emergency rate hike on 6 March — the largest single monetary policy adjustment in Egyptian history — which pushed the overnight deposit rate to 27.25% and the lending rate to 28.25%. The rate hike was paired with a managed float of the Egyptian pound, which depreciated approximately 38% against the US dollar, to about EGP 49.5 per dollar on the day of the float. The IMF Executive Board approved the expansion of the Extended Fund Facility to $8 billion on 29 March. The sector's return on equity reached 32.2% as at March 2024. The largest private sector bank, Commercial International Bank (CIB), reported its gross loan portfolio grew 24% year-to-date through H1 2024, with a non-performing loan ratio of 4.13% (improved from 5.07% a year earlier) and a coverage ratio of 314%. Total deposits in the Egyptian banking system reached about EGP 12.0 trillion at end-June 2024.

Morocco

Morocco's Bank Al-Maghrib delivered the region's most significant monetary policy pivot of Q2 2024, cutting its key interest rate by 25 basis points to 2.75% at its June 2024 Board meeting — the first reduction since June 2020, following 150 basis points of cumulative tightening between September 2022 and March 2023. BAM cited inflation's return to low levels after averages of 6.6% in 2022 and 6.1% in 2023, and projected average inflation of 1.5% for 2024. Bank lending rates for Q2 2024 averaged 5.43% across the sector — a modest 3 basis point increase quarter-on-quarter — with equipment loans at 5.02% and consumer credit at 7.03%. Banks' liquidity needs stood at MAD 111.4 billion at end-2023, and BAM projected MAD 109.8 billion for end-2024, met through its refinancing operations. Bank of Africa, the country's third-largest banking group, reported improving NPL coverage of 69.1% at 30 June 2024 versus 67.6% at end-2023.

Jordan

The Central Bank of Jordan maintained its main policy rate at 7.50% at its meeting on 13 June 2024, noting that current rates were adequate to maintain monetary stability and the attractiveness of the Jordanian dinar. Total credit facilities in the banking system reached JD 34.1 billion as at end-April 2024, growing 2.7% year-on-year — a subdued pace reflecting the difficult geopolitical environment. The interest rate margin stood at 2.41% as at end-April 2024. The Gaza conflict, whilst not directly impacting Jordan's financial system, dampened economic activity through tourism disruption, and weaker investor sentiment.

Iraq

Iraq's banking sector remained in a transitional phase in Q2 2024, with the Central Bank of Iraq holding its policy rate at 7.50% — a level maintained since a decisive 350 basis point hike from 4.00% in June 2023. The gross non-performing loan ratio continued to improve, declining to 6.56% in Q1 2024 from 7.26% a year earlier. The credit-to-deposit ratio for the system reached 57.1%, still comfortably below the CBI's 75% ceiling. Iraq's banking sector faces structural challenges including state-bank dominance, limited digital infrastructure, and persistent US dollar market tensions — the official CBI rate stood at IQD 1,300 per dollar versus a parallel market rate approximately 10–20% higher. However, the CBI's ambitious digitalisation and reform programme, including a plan to eliminate cash transactions in government institutions, signals the beginning of a longer-term structural upgrade. Private bank NPL ratios of approximately 3.60% in Q1 2024 were well below the system-wide ratio.

Oman

Oman's banking sector maintained a stable and well-capitalised profile through Q2 2024. The Central Bank of Oman held its repo rate at 6.00% throughout the quarter, mirroring the US Federal Reserve's steady stance in line with the Omani rial's peg to the dollar. Oman's public debt was reported in June 2024 to have fallen to OMR 14.5 billion.

Regulatory and Policy Developments

The regulatory landscape across MENA banking was notably active in Q2 2024 and the surrounding period, with several structural initiatives either concluded or materially advanced.

UAE — FATF Grey List Removal (February 2024): The Financial Action Task Force removed the UAE from its list of jurisdictions under increased monitoring on 23 February 2024.

UAE — Open Finance Regulation: The CBUAE issued its Open Finance Regulation in 2024 and set out a centralised API platform model, with phased participation by licensed financial institutions in banking and insurance.

Saudi Arabia — Open Banking Phase 2 Rollout: SAMA published the second release of its Open Banking Framework, covering payment initiation services, in early September 2024, building on the first release (account information services) of November 2022.

Bahrain — Open Banking: The CBB, a first mover on open banking in the GCC, continued to extend its open banking framework to further use cases.

Egypt — IMF Programme Third Review: The IMF's Executive Board completed the third review of Egypt's Extended Fund Facility on 29 July 2024, confirming continued disbursements under the $8 billion programme.

Risk Monitor

The MENA banking sector's risk profile as at end-Q2 2024 was broadly manageable, with pockets of elevated concern in Iraq and Morocco. The following risk categories were most material to the period:

Interest Rate Risk (GCC): GCC banks entered Q2 2024 near the peak of the interest rate cycle. Whilst sustained high rates inflated net interest income, the prospect of rate cuts — anticipated from Q3 2024 onwards — introduced material re-pricing risk. Floating-rate assets would reprice downward faster than fixed-cost deposit books, compressing future NIM.

Geopolitical Risk (Regional): The ongoing conflict in Gaza and broader Middle East tensions created persistent uncertainty across the Levant corridor and neighbouring markets. In Jordan, the impact was felt mainly through disrupted trade routes and reduced tourism. The risk of escalation — particularly any scenario involving Iran, Israel, and broader GCC involvement — constituted the most significant systemic tail risk for the regional banking system.

FX and Macro Risk (Egypt): Egypt's pound devaluation, though strategically necessary, introduced balance sheet translation risk for banks with foreign currency liabilities and elevated the nominal credit loss rates for unhedged borrowers in EGP. CIB reported an NPL coverage ratio of 314% at end-June 2024. Continued IMF programme adherence remained the critical risk mitigant.

Asset Quality (Morocco and Iraq): Morocco's bank NPL ratio stood at 8.5% at end-2023 (Bank Al-Maghrib). Coverage ratios of approximately 69% (Bank of Africa, June 2024) represented a partial buffer. Iraq's 6.56% system-wide NPL (Q1 2024) was improving directionally but remained elevated, particularly at state-owned banks.

TGB Outlook

Looking ahead from the Q2 2024 vantage point, TGB identifies several key dynamics expected to shape MENA banking performance over the subsequent two to four quarters.

GCC Rate Cycle Reversal. The US Federal Reserve began cutting rates in September 2024, and GCC central banks anchored to the dollar followed. The CBUAE lowered its Base Rate by 50 basis points to 4.90% on 18 September 2024. NIM compression is the primary financial consequence: GCC banks benefiting from elevated SAIBOR, EIBOR, and QIBOR spreads will face a tightening environment. Banks with lower loan-to-deposit ratios and more fixed-rate book compositions — notably UAE retail banks — will be better insulated. The KSA sector's 97.8% loan-to-deposit ratio at quarter-end increases its sensitivity to cost-of-funds repricing.

Egypt Stabilisation Trajectory. Egypt's banking sector faces a dual narrative: nominal performance at record highs, but real returns restrained by inflation. As the disinflation path advances — CPI was expected to trend toward lower levels through H2 2024 and into 2025 — the CBE is positioned to commence an easing cycle. Whilst this will compress the extraordinary NIM environment, it should support credit demand from the private sector and improve the real economic backdrop. The sector's ability to maintain asset quality as rate pressures moderate will be the critical determinant of sustained profitability.

Morocco and the Easing Momentum. Bank Al-Maghrib's June 2024 rate cut was its first since June 2020; TGB expects any further easing to be measured, with BAM projecting inflation of 1.5% in 2024 and 2.7% in 2025. Declining lending rates should stimulate mortgage and equipment credit demand, supporting loan growth that has been subdued. Banks with efficient funding cost structures will translate easing into margin expansion; those heavily reliant on longer-duration fixed-rate deposits will experience a gradual benefit.

Iraq and Structural Reform. Iraq presents the clearest medium-term upside optionality in the sample. A banking system with a 6.56% NPL ratio, state-bank dominance, and minimal digital penetration, but sitting atop one of the world's largest hydrocarbon reserves and undergoing a CBI-led transformation programme, offers significant long-run improvement potential. The planned elimination of cash transactions in government institutions represents a structural catalyst that, if achieved, would significantly expand the formal financial sector's reach and improve deposit mobilisation.

Technology and Open Banking. Open banking and open finance frameworks in the UAE, Saudi Arabia and Bahrain are reshaping GCC retail financial services. As API frameworks mature and fintech partnerships scale, incumbent banks face both competitive pressure and revenue diversification opportunities. Institutions investing in platform-based models — leveraging Banking as a Service and embedded finance — are positioned to capture incremental revenue streams beyond traditional intermediation. The UAE's centralised open finance platform model sets a regional benchmark that others will measure themselves against.

In aggregate, MENA banking enters H2 2024 from a position of strength. Profitability is high in the GCC and Egypt, and credit quality improved in the UAE and Saudi Arabia. The transition from peak rates to easing will be the dominant near-term narrative, testing the sector's capacity to sustain earnings as the primary NIM tailwind subsides. Those institutions — in the UAE, Saudi Arabia, and Kuwait — that have used the high-rate period to rebuild provisioning buffers, deepen non-interest income, and invest in digital infrastructure will be best placed to navigate the next phase of the cycle. The broader MENA banking story, however, continues to be defined by extraordinary diversity: from the technologically advanced and internationally integrated UAE system to the nascent, hydrocarbon-dependent Iraqi sector.

This report was prepared by TGB Research using data from central bank publications, regulatory filings, and proprietary analysis. Sources include: CBUAE Quarterly Economic Review (September 2024); A&M UAE Banking Pulse Q2 2024; A&M KSA Banking Pulse Q2 2024; QCB press releases (June 2024); CBJ Monthly Bulletin (July 2024); CBJ Press Release (13 June 2024); Bank Al-Maghrib lending rates survey Q2 2024; Bank Al-Maghrib Board statement (25 June 2024); Bank Al-Maghrib Annual Report on Banking Supervision 2023; CBI Monetary Policy Report 2024; CBE data (March–June 2024); CIB Q2 2024 earnings release; NBK Investor Presentation Q2 2024; EY MENA Banking Report 2024. All figures relate to Q2 2024 (April–June 2024) unless otherwise noted. This report is for informational purposes only and does not constitute investment advice. © The Global Banker. All rights reserved.