|By TAP Staff| According to a new study by The Boston Consulting Group (BCG), the banking industry in the Middle East maintained double-digit revenue growth in 2014 with a 10.0 percent increase, stemming largely from major customer segments such as retail and corporate banking as well as international business and treasury.
Based on the banks’ 2014 annual results released in the first quarter of 2015, the newest study is part of BCG’s annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading Middle East banks.
BCG launched the first edition of the banking performance index in the Middle East in April 2009, creating a customized index specifically for the regional banking markets, with 2005 revenues and profits as starting benchmarks. The index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and in the UAE.
“The 2014 BCG index includes 40 banks from across the GCC, capturing almost 80 percent of the total regional banking sector,” added Dr. Leichtfuss.
While revenues of banks in the UAE grew by 14 percent and banks in Oman and Qatar are maintaining double-digit growth, Saudi, Kuwaiti and Bahraini banks are experiencing single-digit growth rates. The spread of profit growth rates was particularly wide: while banks in the UAE enjoyed a 26 percent profit increase and those in Kuwait saw a rise of 21 percent, banks in Bahrain had to cope with profit decreases.
In 2014, loan-loss provisions dropped in all countries with the exception of Oman. In fact, banks in Kuwait and Qatar, which achieved high growth rates in 2013, have shown double-digit reductions in loan-loss provisioning. Banks in the UAE and KSA were also able to reduce in the single digits. This is the strongest reduction in LLPs since 2010.
In 2014, the growth of bank revenues exceeded the growth in the main customer segments by about 2 percent. This is attributed to several significant acquisitions of foreign banks, which are consolidated in the international divisions, as well as an increase in treasury income (9.8 percent).
In 2014, retail banking revenues in the GCC experienced a further uptick of 7.9 percent, largely due to an increase in Qatar (12.5 percent), the UAE and Bahrain. Kuwait also witnessed a healthy retail banking revenue growth (6.3 percent), followed by Saudi banks with 3.4 percent.
GCC retail profits maintained single-digit growth in 2014 with 3.6 percent, which is slightly lower compared to 2013 when retail profits grew by 5.8 percent. Banks in the UAE, Qatar, Bahrain, and Kuwait have shown higher double-digit growth rates. In parallel, KSA and Oman suffered a sharp decline in retail profits.
Corporate banking revenues grew by 8.8 percent while profits increased by 17.1 percent
The corporate segment reached a new top index level in revenues in 2014 by growing 8.8 percent. In 2014, banks in Saudi Arabia excelled in corporate banking revenues. On average, profits of GCC banks increased by 17.1 percent, as a result of strong increases in revenues of banks in Saudi Arabia, UAE, and Qatar.
“In 2014, 80 percent of the banks in the region were able to achieve growth as a result of positive market developments which facilitated revenue growth and reductions in loan-loss provisions,” stated Dr. Leichtfuss.
About 15 to 25 banks achieved double-digit growth rates both in revenues and in profits, while three to eight banks witnessed negative growth in revenues or profits overall or across customer segments.
“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.
The leading banks over the last 10 years have grown at double or triple the rate of the average; and, each time, new factors of success emerge. “In the next three to five years, as we continue to see banks deliver a strong performance and solid organizational sales culture, the digitization of the front-end processes will begin to increasingly gain traction. For banks in the Middle East, this will serve as an important milestone, especially since the cost-to-income ratio has been rising continuously over the last decade.”