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Dr. Reinhold Leichtfuss.

GCC banks back on double digit growth path

: Tuesday, April 08 - 2014 @ 13:50

According to a new study by The Boston Consulting Group (BCG), the banking industry in the Middle East returned to double digit revenue growth in 2013 with a 10.7% increase, stemming largely from international acquisitions.

Based on the banks’ 2013 annual results released in the first quarter of 2014, the newest study is part of BCG’s annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading Middle East banks.

BCG launched the first edition of the banking performance index in the Middle East in April 2009, creating a customized index specifically for the regional banking markets, with 2005 revenues and profits as starting benchmarks. The index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and in the UAE.

“The 2013 BCG index includes 35 banks from across the GCC, capturing nearly 80% of the total regional banking sector,” said Dr. Reinhold Leichtfuss.

Qatar and UAE banks show strongest growth

While revenues of banks in Qatar grew by 20% and banks in the UAE are back to double digit growth overall, Saudi, Omani and Bahraini banks are experiencing single digit growth rates. The spread of profit growth rates was particularly wide: while banks in Bahrain enjoyed 30% profit increase and 19% in the UAE, banks in Kuwait had to cope with double digit reductions.

In 2013, loan loss provisions varied significantly by country. In particular, banks in Qatar and Kuwait had to build higher provisions due to increasing delinquencies. UAE and Saudi banks by and large repeated the provision levels of 2012 of 3.3 and 1.7 billion dollars respectively.

In 2013, the overall growth of revenues exceeded the growth in the segments by about 4% which is significant. This is largely due to several significant acquisitions of foreign banks, which are consolidated in the international divisions.

In addition treasury revenues grew by 16%. “While we are observing only a growth around 7% in the core segments, we acknowledge that this growth is almost twice as high as in 2012, especially in corporate banking,” Leichtfuss adds.

Retail revenues and profits grow 7.2% – profits grew 5.8% with a large spread between banks

In 2013, retail banking revenues in the GCC experienced a further uptick of 7.2%, largely due to an increase in the UAE. Qatar and Kuwait had retail banking revenues in the high single digits, close to 10%, followed by the Saudi banks with a healthy 5.9%. Bahrain stays at the same level as 2012, with no revenue growth. Oman declined by percent.

GCC retail profits, which had been declining for several years, saw an uptick of 5.8% compared to 3.5% last year. Nevertheless, the profit level in 2013 remained slightly below 2006 levels which were exceptional retail years for banks in the GCC.

Corporate banking revenues grow at 6.9% and profits grow in double digits

The corporate segment reached a new top index level in revenues in 2013 by growing 6.9%. In 2013, banks in Saudi Arabia and Bahrain especially excelled in corporate banking revenues. On average, profits of GCC banks increased by 11%, due in particular to strong increases in revenue of banks in Saudi Arabia

Superiority of strategies, business models and execution decisive for widening gaps between Middle East banks

While about 10 to 15 banks achieved double digit growth rates both in revenues and in profits, 3 to 10 banks are incurring negative growth in revenues or profits overall or in customer segments.

Leichtfuss comments: “If we take out the effect of ‘country specific growth’ which is often driven by government investments, of which banks benefit from at varying degrees, both long and short term developments show that the banks that have a superior strategy and who were able to build strong business models and execute decisively, grow the strongest. This is of course easier said than done.”

The leading banks over the last 10 years have grown at double or triple the rate of the average.

Some major elements for their success are:

• Develop a superior strategy and be persistent and fast in the implementation. Keep course in difficult times as well; remove hurdles for implementation always in a swift way. Always follow through.

• The establishment of superior multichannel models, which allow strong customer and revenue growth at lower cost and thus cost/income ratios. Effective usage of direct sales forces and direct channels in combination with an efficient and not oversized branch networks are crucial in this context.

• Strong sales discipline and high service, both in retail and in corporate banking

• Proactive conquering of new segments, such as business banking associated with well developed risk systems

• Increasing acquisitions of banks or portfolios – nationally and internationally.

Contact:

Rawan Lutfi
Manager
GolinHarris
T. + 971 4 332.3308 Ext. 151

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Tuesday, April 8- 2014 @ 13:50 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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