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MONEY MATTERS

GCC banks back on double digit growth path

Dubai, April 9, 2014

The banking industry in the Middle East returned to double digit revenue growth in 2013 with a 10.7 per cent increase, stemming largely from international acquisitions, according to a recent study.

Middle East banking revenues continued to grow with profits increased by 10.3 per cent, said the study by The Boston Consulting Group (BCG).

At an aggregate level, provisions for bad loans grew slightly again, by 2.5 per cent. Increases in operating costs exceeded revenue growth significantly with 13.9 percent.

The main customer segments; retail and corporate banking, however, remain significantly behind the overall revenue growth rate with 7.2 percent and 6.9 percent growth rates respectively, stated the study by The Boston Consulting Group.

This was mainly because of the growth in international business including acquisitions of banks as well as in treasury, it added.

“We observe that the gaps between banks' developments are widening: While about 10 to 15 banks achieve double digit growth rates both in revenues and in profits, 3 to10 banks had to accept negative growth in revenues or profits overall or in customer segments,” remarked Dr Reinhold Leichtfuss, the senior partner & managing director in BCG's Dubai office and leader of BCG’s Financial Institutions practice in the Middle East.

Again, the performance of Middle East banks clearly exceeded that of their international counterparts, a number of which experienced further revenue declines in 2013, he noted.

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 the Gulf countries.

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

According to the study, the banks in Qatar and UAE posted the strongest growth among the Gulf countries.

While revenues of banks in Qatar grew by 20 per cent and banks in the UAE are back to double digit growth overall, Saudi, Omani and Bahraini banks are experiencing single digit growth rates, said the BCG in its study.

The spread of profit growth rates was particularly wide: while banks in Bahrain enjoyed 30 per cent profit increase and 19 per cent in the UAE, banks in Kuwait had to cope with double digit reductions, it noted.

In 2013, loan loss provisions varied significantly by country, said the BCG study. 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 respectively.

In 2013, the overall growth of revenues exceeded the growth in the segments by about four per cent 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 per cent.  "While we are observing only a growth around 7 per cent in the core segments, we acknowledge that this growth is almost twice as high as in 2012, especially in corporate banking," added Leichtfuss.

In 2013, the retail banking revenues in the GCC experienced a further uptick of 7.2 per cent, largely due to an increase in the UAE growth, said the study.

Qatar and Kuwait had retail banking revenues in the high single digits, close to 10 per cent, followed by the Saudi banks with a healthy 5.9 percent. Bahrain stayed at the same level as 2012, with no revenue growth, while Oman growth dropped.

GCC retail profits, which had been declining for several years, saw an uptick of 5.8 per cent compared to 3.5 percent last year. Nevertheless, the profit level in 2013 remained slightly below 2006 levels which were exceptional retail years for banks in the GCC.
 
The corporate segment reached a new top index level in revenues in 2013 with a 6.9 per cent growth, stated the BCG in its study.

In 2013, the banks in Saudi Arabia and Bahrain especially excelled in corporate banking revenues. On average, profits of GCC banks increased by 11 per cent, due in particular to strong increases in revenue of Saudi banks, it added.

The leading banks over the last 10 years have grown at double or triple the rate of the average mainly due to their key startegies, said the study.

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.

Leichtfuss pointed out that superiority of strategies, business models and execution were decisive for the 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 were incurring negative growth in revenues or profits overall or in customer segments.

"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," he added.-TradeArabia News Service




Tags: banking | Middle East | growth | Revenue |

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