In this year’s The Asian Banker Strongest Banks By Balance Sheet evaluation, banks in Saudi Arabia and Qatar achieved the highest weighted average strength score, at 3.83 and 3.64 out of five, respectively. This year, financial information in the first half of financial year 2020 (1H FY2020) was collated and incorporated into the assessment of how commercial banks and financial holding companies (banks) performed during the COVID-19 pandemic.

The average strength score recorded by banks in the Middle East fell from 3.62 in the previous year’s evaluation to 3.48 in 2020, a reflection of weaker overall financial performance. Apart from the impact of the pandemic, low oil prices also posed serious challenges to the banking system. Banks in the region registered an average return on assets (ROA) of 0.92% in 1H FY2020, much lower than 1.69% in 1H FY2019. Asset quality deteriorated and average capital adequacy ratio (CAR) also declined during the year.

Qatari banks enjoyed the highest average ROA of 1.4% and the lowest average cost to income ratio of 25.1%, while banks in Lebanon and Bahrain recorded the lowest score in profitability. Overall, profitability was weaker in this year’s evaluation, and banks in UAE saw average ROA fall the most, from 1.9% to 0.9%. The average ROA of banks in Bahrain also dropped considerably from 1.3% to 0.4%, and average cost to income ratio was up from 50.5% in 1H FY2019 to 62.2% in 1H FY2020, the highest increase in the region.

Saudi Arabian banks maintained the strongest asset quality, followed by banks in Kuwait and Qatar. However, average gross non-performing loan (NPL) ratio deteriorated overall. Banks in Oman, Qatar and UAE witnessed both a rise in gross NPL ratio and a drop in loan loss reserves to gross NPL ratio. In addition, Saudi Arabian banks enjoyed the highest level of capitalisation, with CAR averaging 18.9%. Middle Eastern banks have remained well capitalised, although average CAR was down marginally from 18.4% to 17.8%.

The Lebanese banking sector suffered huge losses in the year due to a severe and deepening economic and financial crisis since 2019. Lebanese banks are required to increase capitalisation by 20% by the end of February 2021 and face possible government takeover should they fail to meet threshold.

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

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