GCC banks: Key themes to watch for in 2023

Banks in the Gulf Cooperation Council (GCC) region are set for a strong year in 2023, with higher profits, continued strong capital markets activity, and the possibility of further investments in European financial services companies.
Profitability rebound
GCC banks are expected to report near-pre-pandemic levels of profits for full year 2022, driven by an economic recovery and central banks' moves to tighten monetary policy, according to analysts at S&P Global Ratings. The benefits are expected to continue this year.

Banks were able to pass rate increases on to customers, leading to a surge in net interest income. In the third quarter of 2022, the 20 largest GCC banks recorded net interest income of $14.66 billion, up from $13.61 billion in the previous quarter and $12.25 billion in the first quarter of 2022.

Lending is also expected to grow in the GCC, underpinned by projects related to Saudi Arabia's Vision 2030 framework. Mortgages will also contribute to growth, albeit at a slower pace than in recent years.
IPO boom

The GCC region is set to see more capital markets activity in 2023 as more companies seek public listings. In the first 11 months of 2022, the aggregate value of IPOs in the region hit $21.4 billion, its highest level since 2019. The biggest transaction by value so far has been Dubai Electricity and Water Authority PJSC's IPO in April 2022, which raised more than $6 billion.
Gulf investment in European financial services
Investors based in the GCC increased their shareholdings in European banks in 2022 and could buy further financial services stakes in 2023. Most notably, Saudi National Bank took part in the high-stakes capital increase of Credit Suisse Group AG.

The Qatar Investment Authority, the Qatari sovereign wealth fund, and Saudi Arabia's wealthy Olayan family were already shareholders of Credit Suisse. The Qatar Investment Authority holds a 3.36% stake, and Olayan Investments Company Establishment has 3.22%.
Additional key themes to watch for in 2023:
- The impact of rising interest rates on borrowers
- The growth of fintech in the GCC region
- The potential for consolidation in the GCC banking sector
Overall, the outlook for GCC banks is positive in 2023. The region's banks are well-capitalized and have a strong track record of profitability. They are also well-positioned to benefit from the region's economic growth.
FAQs
Q: What are the main factors driving the profitability rebound of GCC banks?
A: The main factors driving the profitability rebound of GCC banks are the economic recovery in the region, central banks' moves to tighten monetary policy, and a rise in net interest income.
Q: What are the risks to GCC banks' profitability in 2023?
A: The main risks to GCC banks' profitability in 2023 are a slowdown in economic activity, exposure to riskier countries such as Egypt and Turkey, and a potential liquidity crunch.
Q: What are the reasons for the strong IPO activity in the GCC region?
A: The strong IPO activity in the GCC region is due to a number of factors, including government support, economic stability, and strong investor appetite.
Q: What are the sectors that are expected to see some big IPO listings in the GCC region in 2023?
A: The sectors that are expected to see some big IPO listings in the GCC region in 2023 are retail, energy, real estate, media, and utilities.
Q: What are the reasons why Gulf investors are increasing their stakeholdings in European financial services companies?
A: Gulf investors are increasing their stakeholdings in European financial services companies for a number of reasons, including the attractive valuations of European banks, the desire to diversify their portfolios, and the belief that European banks are well-positioned for growth.
Q: What are the specific challenges that GCC banks face in terms of complying with Basel IV?
A: GCC banks face a number of specific challenges in terms of complying with Basel IV, including the need to implement a new leverage ratio, the need to increase their holdings of high-quality liquid assets, and the need to improve their stress testing capabilities.
Q: What are the implications of Gulf investors' increased stakeholdings in European financial services companies for the European banking sector?
A: Gulf investors' increased stakeholdings in European financial services companies could have a number of implications for the European banking sector, including increased competition, increased investment in technology, and a greater focus on emerging markets.
Q: What are the prospects for the Gulf Cooperation Council capital markets in 2023?
A: The prospects for the Gulf Cooperation Council capital markets in 2023 are positive, with continued strong activity expected in both the equity and debt markets. This will be supported by a number of factors, including continued economic growth in the region, government support for capital markets development, and strong investor appetite.
Q: What are the specific opportunities for Gulf investors in the European financial services sector?
A: There are a number of specific opportunities for Gulf investors in the European financial services sector, including investments in banks, insurance companies, asset managers, and fintech companies.
Q: What are the risks associated with Gulf investors' investments in European financial services companies?
A: There are a number of risks associated with Gulf investors' investments in European financial services companies, including regulatory risk, political risk, and economic risk.