The banking sector in the Middle East and North Africa (MENA) region has shown remarkable resilience and performance in the first half of 2023, according to a recent report by EY. The report revealed that the net profits of the MENA banks increased by 30% year on year (YoY), while the net assets grew by 12.2% YoY. The region also recorded higher returns on equity and net interest margin compared to the same period last year.
Factors behind the strong performance
The EY report attributed the impressive results of the MENA banking sector to several factors, such as:
- The recovery of the global and regional economies from the impact of the COVID-19 pandemic, which boosted the demand for credit and financial services.
- The proactive measures taken by the central banks and regulators in the region to support the liquidity and solvency of the banking system, such as lowering interest rates, providing relief packages, and easing prudential requirements.
- The digital transformation and innovation initiatives undertaken by the MENA banks to enhance their operational efficiency, customer experience, and competitive edge.
- The consolidation and merger activities among some of the leading banks in the region, which created synergies and economies of scale.
Highlights of the key indicators
The EY report analyzed the financial performance and position of 54 banks across 11 countries in the MENA region, based on their published financial statements for the first half of 2023. Some of the key indicators are:
- The net profits of the MENA banks reached $24.7 billion in H1 2023, up from $19 billion in H1 2022, representing a 30% YoY increase. This was mainly driven by higher net interest income, lower impairment charges, and higher non-interest income.
- The net assets of the MENA banks amounted to $2.6 trillion in H1 2023, up from $2.3 trillion in H1 2022, representing a 12.2% YoY increase. This was mainly due to the growth in loans and advances, deposits, and investments.
- The returns on equity (ROE) of the MENA banks improved to 13.8% in H1 2023, up from 7.6% in H1 2022, representing a 6.18% YoY increase. This was mainly due to the higher net profits and lower equity base.
- The net interest margin (NIM) of the MENA banks increased to 3.4% in H1 2023, up from 3.2% in H1 2022, representing a 0.2% YoY increase. This was mainly due to the lower cost of funds and higher yield on assets.
Outlook and challenges for the MENA banking sector
The EY report also provided an outlook and some challenges for the MENA banking sector for the rest of 2023 and beyond. Some of the main points are:
- The MENA banking sector is expected to maintain its positive momentum and growth trajectory, supported by the ongoing economic recovery, fiscal stimulus, vaccination programs, and Expo 2020 Dubai.
- The MENA banks will continue to invest in digital transformation and innovation, as well as explore new opportunities in areas such as green finance, Islamic finance, fintech, and cross-border expansion.
- The MENA banks will face some challenges such as increasing competition, regulatory compliance, cyber risks, geopolitical uncertainties, and environmental, social, and governance (ESG) issues.
