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Acquisitions pay off for Gulf banks

gulf banks|By TAP Staff|Takeovers abroad and a boost in treasury income helped Gulf banks increase revenues by more than 10% last year – the best combined performance since the crisis hit five years ago – with regional lenders easily outperforming their international counterparts, says Boston Consulting Group.

“We’re seeing again double-digit growth in the region which, however, comes to a large extent because of international acquisitions of the banks,” said Reinhold Leichtfuss, senior partner and managing director of BCG in Dubai.

Operating in relatively small domestic markets, banks in the oil-rich Gulf region in recent years have been acquiring assets abroad to tap new sources of growth. Most notably, Qatar National Bank and Dubai-based Emirates NBD in 2013 acquired the Egyptian assets of two French banks.

Those efforts appear to have paid off for both banks: ENBD reported a 27% rise in 2013 net profit compared to the previous year, while QNB posted a 13.7% increase in full-year net profit.

Revenues at Gulf banks have been growing since 2005 but at a slower, single-digit pace post-2008 due to the crisis, according to the BCG report based on the performance of 35 regional banks. Loan loss provisions are still rising slightly but not as dramatic as when the financial crisis caught up with the region in 2007 and 2008.

But not all banks are doing equally well, the report shows. Revenues at banks in the U.A.E. and Qatar are growing the fastest, while their counterparts in Bahrain and Oman are trailing behind.

A handful of banks even saw profits decline. For example, National Bank of Kuwait, the country’s biggest bank, reported a drop in full-year net profit while Commercial Bank of Qatar also saw 2013 profits decline.

Meanwhile, international peers have been lagging behind the Gulf banks.

“The situation for the Middle East banks is much better, much more stable. These international banks have been impacted by the crisis much stronger than the Middle East banks,” Mr. Leichtfuss said, adding that the difference in performance is largely due to the macroeconomic backdrop where regional Gulf economies have grown faster than the more mature markets in the West.

One consequence is that global banks have had to sell some of their international subsidiaries to strengthen their balance sheets which help open the door to banks from the Gulf to snap up assets outside their domestic markets.

Looking forward, Gulf banks should benefit from the potential easing of economic sanctions against Iran and the organization of events such as the World Expo in 2020, Mr. Leichtfuss said.

“There are more opportunities than risks and the major challenge is to participate properly in a growing market,” he said.