GCC corporate banking units post growth
Manama, November 10, 2010
Some banks are now successfully shifting their focus from damage control to capitalising on the dynamics created by the downturn, according to a global report released by The Boston Consulting Group (BCG).
The study shows that between 2007 and the first half of 2010, corporate banking units in the GCC were ahead of their global counterparts in terms of revenue growth but less favourably when it came to growth in profits largely due to higher loan loss provisions (LLPs).
The study is based on the report, Crisis as Opportunity: Global Corporate Banking 2010, drawing on BCG's proprietary corporate banking database, 2007-2009 annual results and 2010 first half year results reported by the GCC banks.
'Revenues and loan volumes of GCC corporate banking units showed stronger growth compared to their global counterparts between 2007 and the first half of 2010.
'However, higher loan loss provisioning growth led to shrinking corporate banking profits,' said BCG Middle East wholesale banking leader Markus Massi.
'LLPs almost tripled for the GCC corporate banking units in 2009 compared to 2008.
However, in the same period, their global peers were able to contain this increase to 100 per cent.
'This directly resulted in a decrease in profits for GCC corporate banking units in 2009; their global counterparts, on the other hand, were able to marginally increase their profits in 2009.
'A preliminary assessment of the 2010 first half year results of GCC corporate banks confirms that the observed trends are likely to continue this year as well,' he said.
'For the full year corporate banking, LLPs are likely to increase, although at a slower rate compared to 2009.
'As a consequence, many GCC banks will see further decline in their profits in corporate banking this year,' he added.
The study outlines steps that corporate banking units in the GCC should follow to improve performance.
The report said banks should keep risk management at the top of the agenda and build an effective transaction banking platform with a focus on close integration with the client's system.
They should also develop end-to-end transparency and above all, cultivate deep client relationships.
'In the past, corporate banking units in the GCC did not pay too much attention to their clients' business models or needs,' Massi added.
'They were happy to satisfy their client's ongoing demand for cheap loans. Post-crisis, these units will have to become more client focused and develop a better understanding of both the clients and their industries if they want to truly benefit from these relationships, while at the same time, avoiding unwanted risks,' he said.-TradeArabia News Service