Muscat: The COVID-19 pandemic resulted in an unprecedented impact on the GCC economy that dented both corporate and government’s coffers, according to a new report.
Earnings reported by GCC-listed companies declined to a 5-year low to US$91.3 billion in 2020 as compared to US$150.5 billion during 2019, the Kuwait-based Kamco Invest said in its report.
The 39.3 per cent or US$59.2 billion decline came mainly on the back of a decline in profits for Saudi Aramco (by US$38.9 billion or 44.1 per cent year-on-year (y-o-y) followed by Banking, Real Estate and Materials sectors.
The three sectors accounted for 85 per cent of the decline in net profits for the year when excluding net profits for Saudi Aramco. Excluding the oil giant’s numbers, the decline in Gulf Cooperation Council (GCC) net profits was relatively lower at 32.6 per cent.
The only sectors that showed a noticeable increase in net profits during the year were the Utilities and Food, Beverage and Tobacco sectors that remained resilient during the pandemic due to their defensive nature. Out of the 21 sectors on the exchange, 12 sectors witnessed a y-o-y decline in profits whereas gainers only reported marginal growth.
At the exchange level, Abu Dhabi reported the smallest decline in profits during the year at 7.4 per cent followed by Oman and Qatar with declines of 18.6 per cent and 20.5 per cent, respectively.
In terms of quarterly performance, net profits during the fourth quarter of 2020 declined by 21.6 per cent y-o-y to US$25 billion as compared to US$31.9 billion during the fourth quarter of 2019.
In terms of sequential performance, profits were down marginally by 1.3 per cent as compared to the third quarter of 2020. The y-o-y decline in profits during the fourth quarter of 2020 came as companies on five out of seven exchanges in the region reported a decline in profits whereas Abu Dhabi and Bahrain-listed companies reported 28.5 per cent and 9.5 per cent increase in profits, respectively.
In terms of sectors, the Energy sector once again reported the biggest decline of US$6.2 billion in net profits or 30.8 per cent y-o-y followed by Banks and Real Estate with profits declines of 23.8 per cent and 94.9 per cent, respectively.
On the other hand, the utility sector reported the biggest y-o-y growth in profits.
The Banking sector was among the biggest sectors that reported a decline in profits during 2020. The sectors US$11.8 billion fall in net profits was led by higher provisions booked by banks as bad loans increased during the year due to the pandemic.
Loan loss provisions (LLP) booked during the year reached a record high of US$20.3 billion with an increase seen across the board in all six countries.
Banks in the UAE booked the biggest spike in LLP during the year with an increase of US$3.4 billion or 71.6 per cent to reach US$8.2 billion.
On the other hand, Saudi Arabian banks booked the lowest percentage increase in LLP at 37.6 per cent or US$1.3 billion to reach US$4.6 billion during the year.
Banks in the region set aside US$6.4 billion for doubtful credit during the quarter of 2020, the highest for a quarter ever recorded in the region.
In the energy sector, the 44 per cent drop in profits for Saudi Aramco was led by the historic decline in crude oil prices during the first half of 2020 in addition to a decline in volumes sold as well as weak refining and chemical margins.
The trend was similar for the bulk of the companies in the sector with 14 out of 21 companies in the GCC energy sector reporting a decline in net profits during 2020.
Similarly, the two-third decline in profits for the Materials sector was led by companies related to the energy industry.
SABIC reported the biggest decline in profits in the sector after the company’s profits shrunk by US$1.4 billion to US$17.8 million in 2020 due to a decline in top-line that was affected by a decline in demand for chemical products.
In the Real Estate sector, which reported the third biggest decline in profits during 2020, results were mainly affected by the loss in rental income as a result of the COVID-19 restrictions imposed by the governments across the region during the year.
Profits for the sector declined by US$3.1 billion to reach US$1.9 billion in 2020 as compared to US$5.0 billion during 2019 mainly led by a US$2.1 billion decline in profits for UAE-based real estate companies.
The three Emaar companies, Emaar Properties, Emaar Malls and Emaar Development reported a combined net profit decline of US$1.7 billion while Damac Properties reported bigger losses of US$283 million in 2020 as compared to a loss of US$10.0 million in 2019.