GCC’s retail banking revenue growth projected to slow down

POST-PANDEMIC REVIVAL DEPENDS ON COST CONTROL AND DIGITISATION

The pandemic has taken a toll on the retail banking sector, and we believe that a slowrecovery scenario is most likely to occur for GCC retail banks.” Godfrey Sullivan | MD and partner, Boston Consulting Group

Revenue growth from retail banking across GCC is expected to slow down in the next few years according to Boston Consulting Group (BCG).

A recent BCG study showed the projected revenue outlook of retail banks in key economies in the GCC, which includes the UAE, Saudi Arabia, and Kuwait in three retail banking revenue growth scenarios.

In all three projected scenarios of 2019-2024, revenue growth is subdued when compared to the strong growth recorded in 2014-2019, a 5.5 per cent compound annual growth Rate (CAGR).

In a quick-rebound scenario, the retail banking revenues in the region is estimated to grow from $26.4 billion in 2019 to $28.6 billion in 2024, at a CAGR of +1.6 per cent.

In a slow-recovery scenario, revenue is expected to shrink by a CAGR of -0.1 per cent to $26.3 billion and in a deeper-impact scenario, BCG estimates banks’ retail revenue pool to shrink by a CAGR of -2.1 per cent.

“The pandemic has taken a toll on the retail banking sector, and we believe that a slowrecovery scenario is most likely to occur for GCC retail banks,” said Godfrey Sullivan, Managing Director and Partner, BCG.

“In this scenario, the revenue pool of regional retail banks will approximately reach the 2019 level only by 2024, essentially a flat market.”

Slowing loans and deposits

Findings from the BCG study indicate that the most affected retail banking products in regional banks because of the pandemic are consumer loans and deposit revenues.

The acceleration of digital payments and e-commerce adoption in the GCC will be a factor to contribute and benefit the revenue growth. “With shifting consumer preferences and increasing population growth, a lot more focus on better implementation of data and analytics in the organisation and cross-selling their full breadth of products to their existing customer base is key to remain competitive,” he said.

Focus on costs

The successful retail bank of the future cannot operate with the cost structure of the present and remain competitive. BCG’s analysis shows that the operating costs of the best banks are already about 40 per cent lower than those of the typical bank, and they have roughly 50 per cent fewer employees.

Way forward is digital

Retail banks can achieve their goals by focusing on their key value streams — a series of value-adding activities to produce a result that customers want — and by redesigning and digitising them front to back.

The study notes that successfully implementing an integrated approach requires bold business goals, reimagined end-to-end customer journeys, simplified and automated processes, improved risk controls, transformed technology, and integrated teams.