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ANALYSIS

Lower oil prices are beginning to impact
the banking industry , says the BCG report.

GCC banks revenue growth back to single-digit in 2015

DUBAI, March 21, 2016

The banking industry in the GCC grew at a lower rate in 2015 than it did in 2014 with just a 7.2 per cent increase, stemming almost exclusively from major customer segments such as retail and corporate banking, a report said.

Based on the banks’ 2015 annual results released in the first quarter of 2016, the newest study from the Boston Consulting Group (BCG) is part of BCG’s annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading GCC banks.

The index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and in the UAE.

“The 2015 BCG index includes 45 banks from across the GCC, capturing about 80 per cent of the total regional banking sector,” said Dr Reinhold Leichtfuss, a senior partner & managing director at BCG's Middle East office.

Oman and UAE banks show strongest growth

In 2015, Oman banks led the pack in terms of growth numbers with 9.6 per cent in revenues and 10.5 per cent in profits. In parallel, UAE banks’ revenues grew by 8.1 per cent and Kuwait banks recorded an 11.4 per cent profit growth. The spread of revenue and profit growth rates between the GCC countries was significantly smaller than that of last year, ranging from four to 11 per cent. There was no negative growth on a country level.

Instead, in 2015, the development of loan-loss provisions (LLPs) varied significantly between the countries, resulting in total, in a small increase of 0.6 per cent. The two biggest countries, the UAE and Saudi Arabia, ended up with a small increase of two per cent and 4.8 per cent, respectively. Whereas Bahrain banks grew LLPs by 39 per cent and Oman banks by 21 per cent.

This is compensated across the GCC by a strong decline in Qatar and Kuwait. “In 2014, we had observed a decline in LLP across almost all countries. Going forward, a slight increase can be expected due to current trends in economic development. A first sign of this is that the majority of banks in the UAE provisioned more in 2015 than they did the year before,” the study said.

After a number of years with growth in operating expenses exceeding that of revenues, 2015 came out with a moderate aggregate cost growth of 6 per cent, with Qatar and Kuwait banks managing almost zero and Bahrain recording a negative growth in cost of one per cent. A number of banks pre-empted the consequences of a low oil price environment and restricted costs and investments. Some larger banks as well as those that had significantly increased costs in the past, managed to achieve low and, in several cases, even negative growth.

Retail revenues grew by a strong 8.1 per cent

In 2015, retail banking revenues in the GCC experienced a further uptick of 8.1 per cent, largely due to an increase in Qatar (16 per cent), Oman (11 per cent) and the UAE (10 per cent).

GCC retail profits faced a decline in aggregate, largely because of a negative growth in the UAE. The growth rate in all the other countries was moderate; in fact, only banks in Qatar reached a double-digit growth rate with 13 per cent.

Corporate banking revenues grew moderately by 3.3 per cent

In 2015, only Oman experienced double-digit growth rates in both corporate revenues and profits. In the UAE, however, there was a slight decline in revenues while profits grew by 22 per cent due to a decline in provisions. All the other countries realized moderate revenue growth. Profit growth numbers, on the other hand, range from minus one per cent in Saudi Arabia to 18 per cent in Kuwait.

Superiority of strategies, business models and execution decisive for widening gaps between GCC banks

“In 2015, the majority of GCC banks were able to achieve revenue growth. The increasing divergence when it comes to profit development is remarkable: while 11 to 17 banks still achieved double-digit growth, 11 to 15 banks witnessed negative growth overall or in customer segments. The number of banks in 'group' and for the 'retail' and 'corporate' segments deviate, since not all banks have a complete segment reporting yet,” stated Dr Leichtfuss.

"The midfield of banks with single-digit growth has become quite small. It is interesting to note that, in several markets, not the top banks but some of their followers achieved the highest growth rates."

“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,” explained Dr Leichtfuss.

 Over the past decade, the leading banks have grown at double or triple the rate of the average ones. In almost all cases, such a development is based on a superior and consistently-executed strategy.

“In the coming three to five years, we consider the digitization of processes as the most important task that banks need to achieve – since this will enable advanced banks to reach the next level of customer experience as well as cost efficiency,” said Dr Leichtfuss.

Needless to say, a superior performance culture and rigorous execution will continue to be equally decisive. It will be required, due to the fact that in 2016, oil price and environment is likely to remain challenging. – TradeArabia News Service




Tags: retail | BCG | GCC banks | Corporate banking |

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