According to a new study by The Boston Consulting Group (BCG), the banking industry in the Middle East settled at single digit revenue growth in 2012 with a 6.9 per cent increase. The increase in profits was slightly higher at 8.1 per cent, stemming largely from extraordinary income sources. Based on 2012 annual results as reported by the banks in the first quarter of 2013, the new 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 the UAE.
"The 2012BCG index includes 32 banks from across the GCC capturing nearly 80 per cent of the total regional banking sector", said Dr Reinhold Leichtfuss, Senior Partner & Managing Director in BCG's Dubai office and leader of BCG's Financial Institutions practice in the Middle East.
He added: "While the performance of Middle East banks settled at high single digit growth figures in 2012,it still compared very well with the international banks which experienced a further revenue decline. This provides the Middle East banks the opportunity to undertake the necessary investments in capabilities and regional expansion."
Banking performance varies
While banks in Qatar grew revenues by 12 per cent and banks in Saudi Arabia and Oman achieved high single digit growth rates, banks in the UAE, Kuwait and Bahrain achieved a revenue growth rate of 5 per cent or below. Banks in all countries achieved above 7 per cent profit growth rates, except in Kuwait with 3 per cent.
In 2012, loan loss provisions varied significantly by country. In particular, banks in Saudi Arabia and Kuwait had to build higher provisions due to increasing delinquencies in sectors such as real estate, construction, banks, financial services, and manufacturing. UAE banks were, on aggregate, able to significantly reduce the existing high provisioning levels by 13 per cent. Bahrain banks also saw higher LLPs but with a less steep growth rate.
Retail revenues and profits
In 2012, retail banking revenues in the GCC which had remained rather flat during the last few years experienced a further uptick of some 4per cent, largely due to an increase in the three biggest markets – the UAE, Saudi Arabia and Kuwait. Oman repeated the strong double digit growth of the previous year. On the whole, the variance between growth rates of individual banks in retail was very high and ranged from -39 per cent to +19 per cent.
GCC retail profits, which had been declining for several years, saw another significant uptick of 8 per cent compared to11 per cent last year. Nevertheless, the profit level in 2012 remained slightly below 2005 and 2006 levels which were exceptional retail years in the GCC.
The corporate segment reached the top index level in revenues in 2012 but only with a minor growth of 3 per cent. In terms of country breakdown, the UAE and Kuwait banks experienced a decline in corporate banking revenues while the other countries experienced a healthy increase of 6 per cent or more.
Need for investments
In an environment of slower market growth smart strategies and better capabilities are essential to grow more than the competition. Leading Middle East banks are striving for regional expansion to find new areas for growth.
Many Middle East banks are prioritizing better customer service as a critical part of their agenda; quite a number actually want to become the best bank in customer experience in their countries.
Other banks are in the process of identifying new growth areas in order to avoid a decline in revenues and there are a number of banks which are focusing on their IT and operations platforms in order to prevent costs from outgrowing revenues continuously.
Oman Daily Observer