GCC listed banks’ results Banking redefined Year-ended 31 December 2020 Appendix report July 2021 — home.kpmg 1 GCC listed banks’ results Appendices Appendix 1 Country analysis Data tables Sources This is an interactive document. To explore more information please click on country names on the top of page. At any time, you can click on the home icon on the top right of each page to come back to content page. © 2021 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Saudi United Arab 2 GCC listed banks’ results Bahrain Kuwait Oman Qatar Arabia Emirates Bahrain Click to toggle Population (million)1 1.5 Nominal GDP (US$ billion)2 37.5 GDP per head (US$ at PPP)1 48,875.0 Inflation (%)2 1.5 Economic data as of 31 December 2020 Source(s): 1Economist Intelligence Unit, Bahrain — data by country; 2IMF estimates, Link, accessed on 28 June 2021. Summary Regulatory update In order to mitigate the impact of Covid-19 on the economy, CBB announced various economic measures for Sector overview licensees throughout 2020. In order to promote transparency and consistency amongst the financial The financial sector in Bahrain is the largest non-oil institutions during the pandemic, the regulator has contributor to the GDP, with 370 financial institutions announced the following important disclosure being licensed and regulated under the Central Bank of requirements and clarifications: Bahrain (CBB) regulatory regime as of 31 December 2020. This includes 24 conventional retail banks — Disclosure of financial impact of Covid-19 in the annual (including branches of foreign banks), and 49 and interim financial statements. conventional wholesale banks. The Islamic segment — Submission of readiness and reliability of the licensees’ includes six retail banks and 11 wholesale banks. Of business continuity and disaster recovery plans. these financial institutions, three conventional retail — Guidance paper on the ‘Covid-19 related money banks and five Islamic retail banks are listed on the laundering and terrorist financing risks and policy Bahrain Bourse and have been covered as part of this responses’. report. Financial performance Financial position The banking sector demonstrated resilience during 2020, Whilst the position of the retail bank’s total assets with six out of eight banks posting profits. However, the continues to grow over the years, the current year overall average profit of these listed banks declined by 37 witnessed a marginal increase of 2.3 percent compared percent year-on-year, on account of the higher provision with 8.9 percent in 2019. charge. ROE was in the range of 3–10 percent, whereas ROA did not demonstrate a significant positive or negative movement. The average LDR decreased by 1.6 percent year-on-year. Total assets (US$ billion) and net profit (US$ million) as of, and for the year ended, 31 December 2020 50.0 452.2 500.0 40.0 300.0 30.0 138.3 141.8 20.0 40.1 66.6 24.3 21.2 100.0 -33.4 profit Net Total assets Total 10.0 -41.7 28.2 11.6 6.0 10.0 8.4 2.7 0.0 3.2 -100.0 AUB Al Baraka Al Salam BISB BBK Ithmaar Khaleeji NBB Note: 2020 financial figures of NBB includes the effect of consolidation of BISB from January 2020. For source data refer to the data table (page 44–46) in Appendix II. © 2021 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Saudi United Arab 3 GCC listed banks’ results Bahrain Kuwait Oman Qatar Arabia Emirates Share price movement (US$) 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 12/31/2019 3/31/2020 6/30/2020 9/30/2020 12/31/2020 AUB Al Baraka Al Salam BISB BBK Ithmaar Khaleeji NBB Average Insights Looking back Overview Capital Adequacy Ratio (CAR) — It has been over a year since Covid-19 was declared as — The regulatory CAR for individual banks was reported a pandemic which has caused significant impact on in the range of 12.7–26.5 percent, which is above the human health and economic disruption across the minimum requirement of 12.5 percent. world. — As of 31 December 2020, the banks were well — This has resulted in economic slowdowns, leading to capitalized at an average CAR of 18.9 percent with a closure of certain businesses and loss of jobs, lower slight reduction of 0.9 percent compared with 2019. interest rates, reduced economic activities, reduced volumes of transactions. This had a direct and indirect Asset quality impact on the banking industry as evident from the — Non-performing loans (NPL) exposure (stage 3) decline in interest income and fee income, lower increased marginally by 3 percent, on an average. This demand for ancillary services, reduced revenue from includes four banks reporting increase in NPL other banking activities, increase in impairment exposures which was offset by decline in exposures in provisions due to increased uncertainty. All of this has the remaining four banks. led to declining profits, declining ROA and ROE, reduced CAR and marginal increase in the financial — The ratio of NPL remained stagnant at an average of 5 position of the banks. percent compared with 2019. The coverage ratio of NPL has marginally increased by 4 percent from 53.3 Asset growth percent as of 31 December 2019 to 57.5 percent as of 2020. — During the year, eight listed retail banks have witnessed a marginal average growth of 2.3 percent in Leverage and liquidity ratios the total assets and average increase in loan exposures of 5 percent compared with 31 December 2019. — As part of the CBB concessionary measures to combat Covid-19, the minimum regulatory requirement of Net profits Liquidity Coverage Ratio (LCR) and Net Stable Funding Ration (NSFR) were always relaxed to 80 percent to — Six out of eight listed banks have reported net profit for the opposed to original requirement of 100 percent. the year 2020, and the year-on-year profit has declined by an average of 37 percent. This decline is largely on — As of 31 December 2020, the LCR was in the range of account of increase in impairment charge, reduction in 103–395 percent and NSFR was in the range of 99– interest income on retail loans and deferral of credit 145 percent. card payments, leading to lower interest income and interest/penalty charges on credit cards, thereby resulting in lower revenue to the banks. © 2021 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. Saudi United Arab 4 GCC listed banks’ results Bahrain Kuwait Oman Qatar Arabia Emirates Outlook Looking ahead Supportive government measures Change in outlook In 2020, the disruptions due to Covid-19 and plunge in the Bahrain’s economy is expected to expand by 3.3 percent oil prices during early 2020 led to Bahrain’s real GDP to in 2021 with the expected growth of non-oil economy by decline by 5.8 percent and 10.2 percent in nominal terms. 3.9 percent in 2021. Further, in April 2021, Fitch has The oil sector contracted by 0.1 percent in real terms and affirmed Bahrain’s rating at 'B+’ with a ‘stable’ outlook. by 28.5 percent in nominal terms, while the non-oil sector This growth is supported by the government’s efforts to contracted both in real and nominal terms by 7 percent revive the economy by continuing concessionary and 7.3 percent, respectively, compared to 2019. measures and vaccination of the population. After a sharp decline in 2Q20 due to restrictions imposed As of 13 July 2021, 70 percent of the population has to contain the spread of the pandemic, the economy been vaccinated with both the doses and measures have started showing signs of recovery in 3Q20, owing to been taken to open borders to facilitate trade and concessionary measures implemented by the government tourism, which will help boost the economy. and the regulator. The financial services sector, which is Despite the circumstances caused by the pandemic, the largest non-oil contributor to the GDP, led the way in Bahrain hosted its first international public event, Formula terms of growth, registering an 11.6 percent increase in 1 race, which had a huge positive impact on the 4Q20 compared with the previous quarter. economy. Bahrain’s commitment toward health and well The economy will continue to be under concessionary being of its citizens and residents was demonstrated measures until 31 December 2021 with an objective to through the entry of only vaccinated individuals to the maintain liquidity and promote stability and possible event. growth in the future. The invention of vaccination for Covid-19, has resulted in positive sentiments across the world. However, the pandemic continues to spread and hence the government continues to impose restrictions from time to time. In addition to the concessionary measures by the government and regulators, Bahrain’s semi-autonomous government agency, ‘Tamkeen’ has announced its five- year strategy with regards to the country’s economic development. It aims to revive certain schemes to boost the economy. The key focus laid by Tamkeen will continue to be on two major areas: Business Development Program: — Aims to support emerging startups, expand access to finance, digitization and training opportunities. Supporting individuals through National Employment Program 2.0 — Aims to upskill Bahrainis, identifying potentional opportunities for growth, providing youth with on-the- job trainings and internships, workshops, vocational training initiatives to prepare for the suitable jobs in the market.