Middle East banking revenue growth slowed down in 2010, whilst profits picked up quite significantly due to reduced provisions for bad loans.

That is one of the key conclusions of a report by the Boston Consulting Group (BCG).

The banking industry in the Middle East shows further signs of recovery but at a slower pace, according to the report.

In 2010, banking revenues stagnated with only a minor increase at the end of 2010 in comparison to 2009.

But profits in 2010 increased significantly due to lower loan loss provisions, down by 17 per cent, although the latter still remained high at above $8 billion.

International banks recovered faster in 2010 but still remained at a much lower revenue and profit index level than their Middle East counterparts.

The BCG index includes 35 banks from across the GCC capturing nearly 80pc of the total regional banking sector.

'Middle East banks in total saw the highest stability in revenues, profits and loan loss provisions compared to the previous years, although the performances of individual countries and banks differs,' said BCG senior partner Dr Reinhold Leichtfuss.

'While revenue and profit remained relatively stable for banks in Saudi Arabia, all other countries showed double digit increases in profit, mainly due to strong reductions in loan loss provisions.

'Overall, the indices show that the core banking segments (retail and corporate) are developing at a relatively stable rate in terms of revenues and profits. Fluctuations are mostly caused by other income elements,' he said.

'This new market environment will lead to a significant increase in competition for the most attractive customer segments,' he added.

'In a slow growth environment banks are forced to build on their competitive strength, since growth will require banks to increase market share at the expense of others.

'Looking at the increasing divergence in the performance of individual banks, it is clear that some banks are prospering while others are losing ground.

'A particular challenge is to keep on sharpening competitiveness while containing cost growth,' he said. 'The winners will be those who tackle these inefficiencies in their operating models quickly.'  - TradeArabia News Service