In this year’s The Asian Banker Strongest Banks By Balance Sheet evaluation, banks in Saudi Arabia and UAE remained the strongest in the Middle East, with the weighted average strength score of 3.93 and 3.76 out of five. Saudi banks continued to deliver robust financial performance, taking top five spots in the top 10 strongest banks list in the region.

On the contrary, the average strength scores for banks in Bahrain and Lebanon are lower than other Middle Eastern countries under evaluation. In addition to subdued balance sheet growth, banks in Bahrain and Lebanon posted much weaker profitability and asset quality than their regional peers amid the challenging operating environment.

The overall profitability of banks in the Middle East improved marginally in 2018. Banks’ operational efficiencies improved, reflected by the fall in the weighted average cost to income ratio of the 100 largest banks in the region from 38% in the previous year to 36.9%. Qatari banks enjoyed the lowest average cost to income ratio, while the ratio for banks in Jordan and Kuwait improved the most. The weighted average ROA went up to 1.65% in 2018 from 1.59% in 2017, and the average return on equity (ROE) was higher at 12.6% from12%. The average ROA of Saudi banks on the list improved further to 2.3%, the highest in the region.

Meanwhile, Middle Eastern banks remained well-capitalised, with capital adequacy ratio (CAR) averaging 18.3% and Tier 1 capital ratio averaging 16.8% in 2018. Despite the slight decline, the average CAR of Saudi banks remained the highest in the region, at 20.3% in 2018. Banks in Qatar, Lebanon and Oman have seen an increase in their average CAR. Despite the challenging operating environment, the overall asset quality of banks in the region stayed relatively sound. Nevertheless, the overall balance sheet growth was weak in 2018, with banks registering the average loan growth and deposit growth of 2.7% and 4.5%, respectively.

Looking forward, most banking systems in the region are expected to remain resilient, despite challenges. Some changes in the rankings are expected in the near future, as the recent mergers and acquisitions drive in the region is expected to create larger and stronger banks. In the face of subdued growth, rapidly changing technology and rising regulatory requirements, more consolidation is expected, as mergers will enhance profitability and boost competitiveness.

For a full explanation of the evaluation criteria please click here.

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