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Arab banking sector is stable, able to withstand shocks despite  challenges and risks: AMF - Daily News Egypt

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Arab banking sector is stable, able to withstand shocks despite  challenges and risks: AMF

Arab banking sector assets reached $3.4trn by end-2018 equivalent to 124% of Arab countries’ GDP

The Arab Monetary Fund (AMF) stressed that the Arab banking sector is stable and able to withstand shocks, despite the challenges and risks facing it, in its annual report.

The report cites the sector’s ability to achieve good levels of capital, asset quality and profitability, which reflects the efforts of central banks and Arab monetary institutions.

In its annual report on financial stability in the Arab countries for 2019, the AMF explained that the total assets of the Arab banking sector reached about $3.4trn at the end of 2018, which is equivalent to about  124% of the Arab countries combined GDP.

It added that the Arab banking sector succeeded in reducing the ratio of non-performing loans to its total loans to the lowest level between 2013 and 2017, to 6.5%, but rose slightly in 2018 to 6.8%.

The fund attributed this slight increase for Arab banks to their inclusion of the International Financial Reporting Standard (IFRS9), which includes good and bad credit facilities.

The AMF stressed that the application of this standard will enhance the durability and solvency of banks, hedge against potential shocks, and improve the quality of assets in the sector.

According to the annual report of the Arab Monetary Fund, the Arab banking sector was characterised by high solvency, where the capital adequacy ratio of the Arab banking sector reached about 17% at the end of 2018. Such ratio is higher than the international bar applied by the Basel standard of 10.5%, which indicates that the Arab banking sector enjoys a high level of solvency and enhances its ability to absorb any potential losses, the report elaborates.

Meanwhile, the report revealed a slight decline in the rate of return on average assets in the Arab banking sector for the first time since 2015 to 1.23% at the end of 2018. it added that this ratio indicates the efficiency of the process of granting credit at the banking sector, and its ability to maintain and develop assets through achieving appropriate returns on them, which enhances the flow of investments to the banking sector and increase the degree of confidence in its safety.

On the other hand, the rate of return on equity decreased slightly for the third consecutive year to 12.5% at the end of 2018, according to the report.

However, AMF believes that despite the decline in this percentage, it reflects the good performance of banks and their effectiveness in the use of their capital, and their ability to face losses that may be exposed.

This report has been prepared in cooperation and in coordination between the AMF and the Financial Stability Working Group in the Arab States, which is formed by the Board of Governors of Central Banks and Arab Monetary Institutions.

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