GCC banks' double-digit growth stays
Gulf Cooperation Council (GCC) banking revenues continued to grow in 2014
Gulf Cooperation Council (GCC) banking revenues continued to grow and reach double-digit rates in 2014 with a 10 percent increase, while profits rose by 14.7 percent, a recent study by The Boston Consulting Group revealed.
Increases in operating costs exceeded revenue growth by 10.7 percent. At an aggregate level, provisions for bad loans decreased by 9.2 percent; this, in turn, is what served as a key driver of strong profit growth.
The main customer segments – retail and corporate banking – grew significantly compared to last year, with 7.9 percent and 8.8 percent growth rates, respectively.
The difference between bank overall growth and customer business growth is attributable to growth in international business – including acquisitions of banks – as well as in treasury, which increased by 9.8 percent.
“We observe that the gaps between banks' developments are still large. While about 15 to 20 banks achieved double-digit growth rates both in revenues and in profits, three to eight banks had to accept negative growth in revenues or profits overall or across customer segments,” said Dr. Reinhold Leichtfuss, a Senior Partner & Managing Director at BCG's Dubai office and the Head 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 2014.
“The 2014 BCG index includes 40 banks from across the GCC, capturing almost 80 percent of the total regional banking sector,” added Dr. Leichtfuss.
While revenues of banks in the UAE grew by 14 percent and banks in Oman and Qatar are maintaining double-digit growth, Saudi, Kuwaiti and Bahraini banks are experiencing single-digit growth rates.
The spread of profit growth rates was particularly wide: while banks in the UAE enjoyed a 26 percent profit increase and those in Kuwait saw a rise of 21 percent, banks in Bahrain had to cope with profit decreases.
In 2014, loan-loss provisions dropped in all countries with the exception of Oman. In fact, banks in Kuwait and Qatar, which achieved high growth rates in 2013, have shown double-digit reductions in loan-loss provisioning. Banks in the UAE and KSA were also able to reduce in the single digits. This is the strongest reduction in LLPs since 2010.
In 2014, the growth of bank revenues exceeded the growth in the main customer segments by about 2 percent. This is attributed to several significant acquisitions of foreign banks, which are consolidated in the international divisions, as well as an increase in treasury income (9.8 percent).
Retail revenues grew by 7.9 percent and retail profits by 3.6 percent with a large spread between banks In 2014, retail banking revenues in the GCC experienced a further uptick of 7.9 percent, largely due to an increase in Qatar (12.5 percent), the UAE and Bahrain.
Kuwait also witnessed a healthy retail banking revenue growth (6.3 percent), followed by Saudi banks with 3.4 percent.
GCC retail profits maintained single-digit growth in 2014 with 3.6 percent, which is slightly lower compared to 2013 when retail profits grew by 5.8 percent.
Banks in the UAE, Qatar, Bahrain, and Kuwait have shown higher double-digit growth rates. In parallel, KSA and Oman suffered a sharp decline in retail profits.
Corporate banking revenues grew by 8.8 percent while profits increased by 17.1 percent The corporate segment reached a new top index level in revenues in 2014 by growing 8.8 percent.
In 2014, banks in Saudi Arabia excelled in corporate banking revenues. On average, profits of GCC banks increased by 17.1 percent, as a result of strong increases in revenues of banks in Saudi Arabia, UAE, and Qatar.
Superiority of strategies, business models and execution decisive for widening gaps between Middle East banks “In 2014, 80 percent of the banks in the region were able to achieve growth as a result of positive market developments which facilitated revenue growth and reductions in loan-loss provisions,” said Dr. Leichtfuss.
About 15 to 25 banks achieved double-digit growth rates both in revenues and in profits, while three to eight banks witnessed negative growth in revenues or profits overall or across customer segments.
“According to BCG’s analysis, it is obvious that banks with superior strategies and strong business models can truly execute decisively and grow the strongest,” Dr. Leichtfuss added.
The leading banks over the last 10 years have grown at double or triple the rate of the average; and, each time, new factors of success emerge.
“In the next three to five years, as we continue to see banks deliver a strong performance and solid organizational sales culture, the digitization of the front-end processes will begin to increasingly gain traction.
For banks in the Middle East, this will serve as an important milestone, especially since the cost-to-income ratio has been rising continuously over the last decade.”