2016 to be an­other chal­leng­ing year for Gulf banks

The Pak Banker - - COMPANIES/BOSS -

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

It's go­ing to be an­other chal­leng­ing year for the bank­ing in­dus­try in 2016 af­ter a de­cline in rev­enue and profit growth in 2015, Bos­ton Con­sult­ing Group's top ex­ec­u­tive told re­porters to­day.

The bank­ing in­dus­try in the GCC grew at a lower rate in 2015 than it did in 2014 with a 7.2 per cent in­crease, stem­ming al­most ex­clu­sively from ma­jor cus­tomer seg­ments such as retail and cor­po­rate bank­ing, ac­cord­ing to a new study by the Bos­ton Con­sult­ing Group (BCG).

"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 are likely to re­main chal­leng­ing," said Dr Rein­hold Le­icht­fuss, a se­nior part­ner and man­ag­ing di­rec­tor at BCG's Middle East of­fice.

Based on banks' 2015 an­nual re­sults re­leased in the first quar­ter of 2016, the 2015 BCG in­dex in­cludes 45 banks from across the GCC, cap­tur­ing about 80 per cent of the to­tal re­gional bank­ing sec­tor.

Some banks are do­ing very well while oth­ers are still strug­gling, Dr Le­icht­fuss said, adding that Is­lamic banks grew faster than con­ven­tional banks in the re­gion in terms of rev­enues in 2015.

Last year, Oman banks led the pack in terms of growth num­bers with rev­enues up 9.6 per cent and prof­its up 10.5 per cent. UAE banks' rev­enues also grew by 8.1 per cent while those of Kuwait banks recorded a 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 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. 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 LLPs across al­most all coun­tries. Go­ing for­ward, a slight in­crease can be ex­pected due to cur­rent trends in eco­nomic de­vel­op­ment. A first sign is that the ma­jor­ity of banks in the UAE pro­vi­sioned more in 2015 than they did the year be­fore," Dr Le­icht­fuss said. Af­ter a num­ber of years with growth in op­er­at­ing ex­penses ex­ceed­ing rev­enues, 2015 came out with a mod­er­ate ag­gre­gate cost growth of six 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 pre­empted 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.

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.

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