Coverage: Q3 2024 · Information to 16 December 2024
TGB Premium Intelligence — Open Access
This report was originally available exclusively to TGB Premium subscribers. It is now part of our open research archive.
TGB Quarterly Regional Banking Monitor · 16 December 2024
Saudi, Emirati and Bahraini central banks passed on the Federal Reserve's 75bp of easing in September and November 2024, while UAE bank credit rose 9.1% year on year in the third quarter and Saudi non-oil activity grew 4.2%.
The desk view
The third quarter of 2024 marked the turn in the Gulf rate cycle. The Federal Reserve cut by 50bp on 18 September and by 25bp on 7 November, and the Saudi, Emirati and Bahraini central banks matched both moves. Kuwait cut once, by 25bp to 4.00%, and Bank Al-Maghrib held Morocco's key rate at 2.75%. Balance sheets were still growing quickly: UAE gross credit rose 9.1% and deposits 14.1% year on year to the end of September. Large-bank results show strong capital and low or falling impaired-loan ratios, but also the first signs of margin pressure from lower rates at First Abu Dhabi Bank and rising impairment charges at Al Rajhi Bank. The test for the coming quarters is whether credit quality holds as margins narrow.
The regional picture
The Federal Reserve began its easing cycle on 18 September 2024, lowering the federal funds target range by 50bp to 4.75–5.00%. On 7 November it cut by a further 25bp, to 4.50–4.75%. Several Gulf central banks announced cuts on the same days.
The Saudi Central Bank (SAMA) cut its repo rate by 50bp to 5.50% on 18 September and by 25bp to 5.25% on 7 November, with the reverse repo rate falling to 5.00% and then 4.75%. The Central Bank of the UAE (CBUAE) cut its Base Rate by 50bp to 4.90% from 19 September and by 25bp to 4.65% from 8 November. The CBUAE said each decision followed the Federal Reserve's change to the Interest Rate on Reserve Balances (IORB), to which its Base Rate is anchored. The Central Bank of Bahrain cut its overnight deposit rate by 50bp to 5.50% from 19 September and by 25bp to 5.25% from 10 November.
Kuwait was the exception among the Gulf central banks covered here. The Central Bank of Kuwait (CBK) cut its discount rate by 25bp, from 4.25% to 4.00%, effective 19 September. Its statement of 7 November, issued on the day of the second Federal Reserve cut, announced no further change and noted that Kuwait's exchange rate regime provides relative flexibility and serves as an anchor for monetary policy. Outside the Gulf, Bank Al-Maghrib kept Morocco's key rate unchanged at 2.75% on 24 September.
The Saudi, Emirati and Bahraini benchmarks each fell by 75bp over the two decisions, the same as the federal funds range. SAMA's repo rate stayed 50bp above the upper end of the federal funds range after the November decision. Kuwait's discount rate fell by a third of that amount. For banks in these systems, lower policy rates reduce the return on central bank placements and on loans that reprice quickly, while deposit costs may adjust with a lag.
Policy rate decisions, September to November 2024
| Central bank | Rate | September 2024 decision | November 2024 decision | Level after November decision |
|---|---|---|---|---|
| Federal Reserve | Federal funds target range | -50bp (18 September) | -25bp (7 November) | 4.50–4.75% |
| SAMA (Saudi Arabia) | Repo rate | -50bp to 5.50% (18 September) | -25bp (7 November) | 5.25% |
| CBUAE (UAE) | Base Rate | -50bp to 4.90% (effective 19 September) | -25bp (effective 8 November) | 4.65% |
| CBB (Bahrain) | Overnight deposit rate | -50bp to 5.50% (effective 19 September) | -25bp (effective 10 November) | 5.25% |
| CBK (Kuwait) | Discount rate | -25bp to 4.00% (effective 19 September) | No change announced (7 November) | 4.00% |
| Bank Al-Maghrib (Morocco) | Key rate | Unchanged (24 September) | No meeting | 2.75% |
Source: Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement (18 September 2024), 18 September 2024; Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement (7 November 2024), 7 November 2024; Saudi Central Bank (SAMA), SAMA's Decision on Repo and Reverse Repo Rates, 18 September 2024; Saudi Central Bank (SAMA), Saudi Central Bank's Decision on Repo and Reverse Repo Rates, 7 November 2024; Central Bank of the UAE (CBUAE), CBUAE Lowers the Base Rate by 50 Basis Points, 18 September 2024; Central Bank of the UAE (CBUAE), CBUAE Lowers the Base Rate by 25 Basis Points, 7 November 2024; Central Bank of Bahrain (CBB), CBB Cuts Overnight Interest Rate by 50 basis points, 18 September 2024; Central Bank of Bahrain (CBB), CBB Cuts Overnight Interest Rate by 25 basis points, 7 November 2024; Central Bank of Kuwait (CBK), CBK Cuts Discount Rate by 25 Basis Points to 4.00%, 18 September 2024; Central Bank of Kuwait (CBK), Statement on the Local Economic, Financial and Banking Developments, 7 November 2024; Bank Al-Maghrib, Press release: Bank Al-Maghrib Board Meeting (24 September 2024), 24 September 2024; Bank Al-Maghrib, Press release: Bank Al-Maghrib Board Meeting (19 December 2023), 19 December 2023.
Saudi Arabia: non-oil growth and fast credit
The General Authority for Statistics (GASTAT) estimated in its flash release that real GDP grew 2.8% year on year in the third quarter of 2024. Non-oil activities grew 4.2%, government activities 3.1% and oil activities 0.3%. Seasonally adjusted real GDP rose 0.8% on the second quarter. Growth was therefore carried by the non-oil economy.
SAMA's Financial Stability Report 2024, published on 30 September, described a well-capitalised system: the banking sector's capital adequacy ratio was 20.1% in 2023. The report said bank credit continued to grow in 2023, driven primarily by corporate credit, which increased by 13.2%.
Al Rajhi Bank's third-quarter results show the same pattern of rapid growth at bank level. Net financing grew 9.9% year on year to SAR 649 billion at 30 September 2024, with corporate financing up 20.1%, SME financing up 21.4% and the mortgage book up 9.9%. Total assets rose 12.7% to SAR 903 billion. Net income after zakat was SAR 14.2 billion for the first nine months of 2024, up 14.1%, and SAR 5,103 million for the third quarter, up 22.8%.
Margins had not yet turned. The bank's net financing and investment margin rose to 3.17% in 3Q 2024 from 3.04% in 2Q 2024. Funding was mostly low-cost: customer deposits grew 10.0% year on year, and current and savings accounts made up 72.2% of the total. The loan-to-deposit ratio was 78.3% and the liquidity coverage ratio 137.2%.
Credit costs were rising from a low base. The non-performing loan ratio was 0.79% at the end of 3Q 2024, against 0.60% a year earlier. That was an increase of 0.19 percentage point. NPL coverage fell to 165.2% from 239.9% over the same period. The net impairment charge for the nine months rose 42.4% to SAR 1,564 million, and the cost of risk rose 8bp to 0.33%. In the third quarter alone the cost of risk was 0.43%, against 0.29% in the second. Capital remained ample, with a Tier 1 ratio of 19.7% and a total capital adequacy ratio of 20.7%.
United Arab Emirates: deposits outpace credit
CBUAE data show a banking system that grew strongly in the third quarter of 2024. Total assets of banks operating in the UAE rose 2.1% in the quarter to AED 4,401.7 billion, and by 11.4% between September 2023 and September 2024. Gross credit rose 2.9% in the quarter to AED 2,161.9 billion, an annual increase of 9.1%. Total deposits grew faster, by 2.6% in the quarter and 14.1% year on year, to AED 2,761.4 billion. Gross credit was therefore equal to about 78% of deposits at the end of September.
Household borrowing led the growth. Personal loans to residents rose 5.0% in the quarter and 16.0% year on year, to AED 473.3 billion. That was faster than the 9.1% growth in total gross credit.
Capital rose with the balance sheet. Capital and reserves grew 4.9% in the quarter to AED 519.5 billion, and the system capital adequacy ratio was 18.6%, against a minimum requirement of 13.0% including the 2.5% capital conservation buffer. That left 5.6 percentage points of headroom over the minimum. The CET1 ratio was 15.5%, up from 15.3% in Q2 2024 and slightly below the 15.6% of Q3 2023.
UAE banking system indicators, Q3 2024
| Indicator | Level, Q3 2024 | Change on Q2 2024 | Change on a year earlier |
|---|---|---|---|
| Total assets | AED 4,401.7bn | 2.1% | 11.4% |
| Gross credit | AED 2,161.9bn | 2.9% | 9.1% |
| Personal loans to residents | AED 473.3bn | 5.0% | 16.0% |
| Total deposits | AED 2,761.4bn | 2.6% | 14.1% |
| Resident deposits | AED 2,547.9bn | 3.1% | 14.2% |
| Non-resident deposits | AED 213.5bn | -3.7% | 12.3% |
| Capital and reserves | AED 519.5bn | 4.9% | 11.8% |
| Capital adequacy ratio | 18.6% | +0.3pp | +0.1pp |
| Tier 1 ratio | 17.2% | +0.2pp | -0.2pp |
| CET1 ratio | 15.5% | +0.2pp | -0.1pp |
UAE banks' gross credit, AED billion
UAE banks: margins diverge, credit quality improves
The two UAE banks covered here reported diverging margin trends. First Abu Dhabi Bank's net interest margin for the third quarter was 7bp lower than in the second, as disciplined pricing was offset by higher cash reserve requirements, increased central bank placements and the 50bp benchmark rate cut. Its quarterly margin was 1.89%, against 1.96% in Q2 2024, although the nine-month margin of 1.93% was still 17bp above the previous year. Emirates NBD's margin improved to 3.75% in the third quarter as DenizBank margins rose, but its nine-month margin of 3.64% was 36bp below the 4.00% of the same period of 2023. Emirates NBD also said it had revised its cost of risk guidance because of the impact of higher interest rates, while raising its loan growth guidance.
Profits still rose. Emirates NBD reported a record profit of AED 19.0 billion for the first nine months of 2024, up 9%. First Abu Dhabi Bank's net profit rose 4% to AED 12.9 billion while absorbing the new UAE corporate tax, and its profit before tax rose 15% to AED 15.3 billion. The tax applies at 9% to net profit on the bank's UAE operations from 1 January 2024.
Asset quality improved at both banks. Emirates NBD's NPL ratio fell to 3.9% at 30 September from 4.6% at 31 December 2023, with impaired-loan coverage of 149%. The bank recorded an impairment credit of AED 1.3 billion for the nine months, with the cost of risk starting to normalise in the third quarter, when it was 63bp. First Abu Dhabi Bank's gross NPL ratio was 3.8%, against 3.9% a year earlier, with provision coverage of 95%. Emirates NBD's CET1 ratio was 15.5% and its capital adequacy ratio 18.0%; First Abu Dhabi Bank reported 14.3% and 18.0%.
Qatar: steady Islamic bank growth
Qatar Islamic Bank's results for the nine months to 30 September 2024 show slower balance-sheet growth than in Saudi Arabia or the UAE. Net profit attributable to shareholders was QAR 3,265 million, up 6.9%. Financing assets rose 4.4% from December 2023 to QAR 127.7 billion, and customer deposits rose 4.6% to QAR 126.4 billion. The finance-to-deposit ratio was 101%.
Asset quality and capital were sound. The non-performing financing ratio was 1.7% at 30 September, and the bank held NPF coverage of 95% after a total impairment charge of QAR 807 million for the nine months. Total capital adequacy was 21.3%. The cost-to-income ratio was 17.3%, the same as a year earlier.
Kuwait: a smaller cut and slower credit
The CBK framed its 25bp cut in September as a response to the end of the tightening cycle at most global central banks and to lower domestic inflation, which had slowed from 4.71% in April 2022 to 3.00% in July 2024. Since March 2022 it had raised the discount rate nine times, by a cumulative 275bp, to 4.25% on 26 July 2023. The September cut therefore reversed less than a tenth of that tightening.
The CBK's 7 November statement put inflation at 2.75% in September 2024. Residents' deposits with the banking system grew 6.7% in the year to the end of September, and credit facilities 5.7%.
Kuwait Finance House reported net profit for shareholders of KD 482.9 million for the nine months, up 4.6%. Its return on average equity rose from 11.72% to 12.11%, and its return on average assets was 1.85%. The group net financing margin was 2.97%, 28bp higher. Net financing receivables were KD 19.1 billion and deposits KD 19.9 billion. The bank's financing provisions exceeded the expected credit loss required under the CBK's IFRS 9 rules by KD 514 million. That surplus is a buffer against any rise in credit costs as rates fall.
Morocco: rates on hold, growth slowing
Bank Al-Maghrib's Board kept the key rate at 2.75% on 24 September, judging it appropriate to maintain the current monetary policy stance. Its projections showed inflation falling from 6.1% in 2023 to 1.3% in 2024, with core inflation hovering around 2% after 5.6% in 2023. The Board expected growth to slow to 2.8% in 2024 from 3.4% in 2023, reflecting a 6.9% contraction in agricultural value added, before rebounding to 4.4% in 2025.
For banks, the central bank expects credit to the non-financial sector to grow 3.3% in 2024 and 4.7% in 2025, after 2.7% in 2023. It also expects banks' liquidity needs to rise to 120.4 billion dirhams in 2024 and 146.6 billion in 2025, mainly because of the expansion of currency in circulation. Rising liquidity needs point to greater reliance by Moroccan banks on central bank refinancing as lending picks up.
Bank Al-Maghrib projections, September 2024
| Indicator | 2023 | 2024 | 2025 |
|---|---|---|---|
| Real GDP growth | 3.4% | 2.8% | 4.4% |
| Headline inflation | 6.1% | 1.3% | 2.5% |
| Bank credit to the non-financial sector, growth | 2.7% | 3.3% | 4.7% |
| Banks' liquidity needs, MAD billion | 111.4 | 120.4 | 146.6 |
Source: Bank Al-Maghrib, Press release: Bank Al-Maghrib Board Meeting (24 September 2024), 24 September 2024.
Cross-country comparison
The comparison points to two groups. In Saudi Arabia and the UAE, credit was growing at or near double digits, with Al Rajhi's net financing up 9.9% and UAE gross credit up 9.1%. In Kuwait, credit facilities grew 5.7%, and Bank Al-Maghrib projected only 3.3% growth in Moroccan bank credit to the non-financial sector for 2024. Every large bank in the sample that reported a capital ratio showed a total capital adequacy ratio of at least 18.0%. Impaired-loan ratios ranged from 0.79% at Al Rajhi Bank to 3.9% at Emirates NBD.
Selected large banks, nine months to 30 September 2024
| Bank | Net profit, 9M 2024 | Change on a year earlier | Impaired-loan ratio | Capital ratio | Margin, 9M 2024 |
|---|---|---|---|---|---|
| Al Rajhi Bank (Saudi Arabia) | SAR 14.2bn | 14.1% | NPL 0.79% | Total CAR 20.7% | Net financing and investment margin 3.08% |
| Emirates NBD (UAE) | AED 19.0bn | 9% | NPL 3.9% | CET1 15.5%; CAR 18.0% | NIM 3.64% |
| First Abu Dhabi Bank (UAE) | AED 12.9bn | 4% | NPL 3.8% | CET1 14.3%; CAR 18.0% | NIM 1.93% |
| Qatar Islamic Bank (Qatar) | QAR 3,265m | 6.9% | NPF 1.7% | Total CAR 21.3% | Not available |
| Kuwait Finance House (Kuwait) | KD 482.9m | 4.6% | Not available | Not available | Net financing margin 2.97% |
Source: Al Rajhi Bank, 3Q 2024 Earnings Release, 27 October 2024; Emirates NBD, Emirates NBD delivers record AED 19.0 billion profit in 9M'24, up 9% y-o-y (Q3 2024 press release), 17 October 2024; First Abu Dhabi Bank (FAB), Management Discussion & Analysis for the nine-month period ended 30 September 2024, 18 October 2024; Qatar Islamic Bank (QIB), QIB Profit grows by 6.9% to reach QAR 3,265 Million for the nine months' period ended 30 September 2024, 16 October 2024; Kuwait Finance House (KFH), KFH holds webcast for Q3 2024 financial results, 27 October 2024.
Outlook risks
The main risk for Gulf banks is margin compression as policy rates fall. First Abu Dhabi Bank's third-quarter margin already reflected the 50bp benchmark cut, and the November cuts by SAMA, the CBUAE and the CBB are likely to feed into loan and deposit pricing from the fourth quarter. Rising credit costs are the second risk: Al Rajhi Bank's quarterly cost of risk rose to 0.43% and Emirates NBD revised its cost of risk guidance. In the UAE, the 16.0% annual growth in personal loans to residents is the segment to watch for asset quality. Kuwait's smaller cut leaves its rate path less tightly linked to the federal funds rate.
What to watch
- 17–18 December 2024: FOMC meeting; the CBUAE Base Rate is anchored to the Federal Reserve's IORB.
- 17 December 2024: Bank Al-Maghrib Board meeting, with the key rate at 2.75%.
Primary sources: General Authority for Statistics (GASTAT), Saudi Arabia, Saudi economy grows by 2.8% during Q3 of 2024 (flash estimates), 3 November 2024; Central Bank of the UAE (CBUAE), Quarterly Monetary, Banking & Financial Markets Developments Report, 2024 - 3rd Quarter, 30 November 2024; Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement (18 September 2024), 18 September 2024; Board of Governors of the Federal Reserve System, Federal Reserve issues FOMC statement (7 November 2024), 7 November 2024; Saudi Central Bank (SAMA), SAMA's Decision on Repo and Reverse Repo Rates, 18 September 2024; Saudi Central Bank (SAMA), Saudi Central Bank's Decision on Repo and Reverse Repo Rates, 7 November 2024; Central Bank of the UAE (CBUAE), CBUAE Lowers the Base Rate by 50 Basis Points, 18 September 2024; Central Bank of the UAE (CBUAE), CBUAE Lowers the Base Rate by 25 Basis Points, 7 November 2024; Central Bank of Bahrain (CBB), CBB Cuts Overnight Interest Rate by 50 basis points, 18 September 2024; Central Bank of Bahrain (CBB), CBB Cuts Overnight Interest Rate by 25 basis points, 7 November 2024; Central Bank of Kuwait (CBK), CBK Cuts Discount Rate by 25 Basis Points to 4.00%, 18 September 2024; Bank Al-Maghrib, Press release: Bank Al-Maghrib Board Meeting (24 September 2024), 24 September 2024; Al Rajhi Bank, 3Q 2024 Earnings Release, 27 October 2024; Emirates NBD, Emirates NBD delivers record AED 19.0 billion profit in 9M'24, up 9% y-o-y (Q3 2024 press release), 17 October 2024; First Abu Dhabi Bank (FAB), Management Discussion & Analysis for the nine-month period ended 30 September 2024, 18 October 2024; Central Bank of Kuwait (CBK), Statement on the Local Economic, Financial and Banking Developments, 7 November 2024; Bank Al-Maghrib, Press release: Bank Al-Maghrib Board Meeting (19 December 2023), 19 December 2023; Saudi Central Bank (SAMA), SAMA Publishes Financial Stability Report 2024, Affirms Resilience of Saudi Financial System, 30 September 2024; Qatar Islamic Bank (QIB), QIB Profit grows by 6.9% to reach QAR 3,265 Million for the nine months' period ended 30 September 2024, 16 October 2024; Kuwait Finance House (KFH), KFH holds webcast for Q3 2024 financial results, 27 October 2024; Board of Governors of the Federal Reserve System, Federal Open Market Committee announces tentative meeting schedule for 2024, 23 June 2023.