GCC banks may do well to in­vest and im­prove: BCG

The Pak Banker - - FRONT PAGE -

DUBAI:

Set­tling into high sin­gle digit growth rate and healthy prof­itabil­ity, Gulf banks would do well to un­der­take nec­es­sary in­vest­ments that need to be taken in the medium and long term. And that in­cludes im­prov­ing the pro­cesses, the in­for­ma­tion tech­nol­ogy plat­form and on­line bank­ing, all in an ef­fort to im­prove cus­tomer ser­vice in or­der to emerge as one of the best banks lo­cally or even re­gion­ally.

That was the mes­sage from Rein­hold Le­icht­fuss, se­nior part­ner and man­ag­ing di­rec­tor in Bos­ton Con­sult­ing Group’s Dubai’s of­fice dur­ing the pre­sen­ta­tion of the BCG Mid­dle East Bank­ing Per­form­ing In­dex 2012 in Dubai yes­ter­day.

“It also in­cludes ex­pan­sion abroad, of course in a cau­tious and in a very wise way,” Le­icht­fuss said, es­pe­cially so, when cost in­come ra­tios of GCC banks are much lower than those of the in­ter­na­tional banks. While cost-in­come ra­tio is 63 per cent for Europe, 61 per cent for USA and 52 per cent for Asia and Aus­tralia, it is only 34 per cent for the GCC banks.

Ac­cord­ing to the report, GCC banks saw an­other year of “good” growth in 2012, with 6.9 per cent rise in op­er­at­ing in­come and 8 per cent in profit. Though a small part of the op­er­at­ing in­come, ‘ex­tra­or­di­nary in­come’ contributed 12 per cent to it. This cat­e­gory of in­come usu­ally comes from sale of one or two sub­units of or port­fo­lio sale of the bank.

How­ever, there were vari­a­tions be­tween coun­tries. While rev­enues in Qatar grew by 12 per cent, fol­lowed by Saudi Arabia and Oman achiev­ing high sin­gle digit growth rates, banks in the UAE, Kuwait and Bahrain achieved 5 per cent or be­low. When it came to profit growth rates, ex­cept Kuwait at 3 per cent, all coun­tries achieved above 7 per cent.

“What is also in­ter­est­ing is that [by last year’s num­bers], sooner or later Qatar is go­ing to take over Kuwait as the third big­gest mar­ket [ in the GCC],” said Le­icht­fuss .

Banks’ ex­penses showed that they were grow­ing more or less in the same pace as rev­enues and that’s al­ways a chal­lenge for the bank to keep that in line.

“If ex­penses are out­grow­ing the rev­enues, then the cost in­come ra­tio in­creases and that is some­thing that many banks want to avoid,” said Le­icht­fuss. “But on the other hand I would also say that Mid­dle East banks must also have the courage to in­vest.”

At an ag­gre­gate level, the loan loss pro­vi­sions (LLPs) went up slightly at 2 per cent last year, when the ex­pec­ta­tion was they would go down in all the six Gulf coun­tries. In­di­vid­u­ally, Saudi Ara­bian and Kuwaiti banks had to pro­vi­sion more for the loans due to delin­quen­cies in con­struc­tion and fi­nan­cial ser­vices sec­tor. In case of the UAE, banks’ LLPs went down by 13 per cent.

“The UAE banks saw a re­duc­tion, how­ever [this was] from still quite a high level,” noted Le­icht­fuss. “The loan loss pro­vi­sions are still the high­est in the UAE, twice as high in the UAE as they are in KSA. But the trend is pos­i­tive — they are go­ing down.”

Dif­fer­en­ti­at­ing be­tween

re­tail and cor­po­rate seg­ments of the banks, the former’s rev­enue grew by 4 per cent and a stronger growth in prof­its. Growth in the cor­po­rate bank­ing was a bit more mod­est with 3 per cent on the rev­enue side as well as on the profit side.

“Over­all, quite a good and healthy devel­op­ment of the en­tire bank­ing sec­tor in all the GCC coun­tries,” Le­icht­fuss said. “That does not nec­es­sar­ily mean the same for ev­ery bank be­cause some­times some banks are win­ning and grow­ing very fast and other banks are even re­duc­ing their rev­enues or prof­its. So, there is quite vari­a­tion be­hind the av­er­age num­bers.”

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