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MENAFN Press - 10/04/2014
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(MENAFN Press) But gaps between banks are widenin



A recent study by The Boston Consulting Group shows that Middle East banking revenues continued to grow and reach double digit rates in 2013 with a 10.7 percent increase, whilst profits increased by 10.3 percent. At an aggregate level, provisions for bad loans grew slightly again, by 2.5 percent. Increases in operating costs exceeded revenue growth significantly with 13.9 percent.



The main customer segments; retail and corporate banking, however, remain significantly behind the overall revenue growth rate with 7.2 percent and 6.9 percent growth rates respectively. The difference is attributable to growth in international business including acquisitions of banks as well as in treasury



"We observe that the gaps between banks' developments are widening: While about 10 to 15 banks achieve double digit growth rates both in revenues and in profits, 3 to10 banks had to accept negative growth in revenues or profits overall or in customer segments", said Dr. Reinhold Leichtfuss, Senior Partner & Managing Director in BCG's Dubai office and leader of BCG's Financial Institutions practice in the Middle East.



Again, the performance of Middle East banks clearly exceeded that of their international counterparts, a number of which experienced further revenue declines in 2013.



Dubai, 31 March 2014 - According to a new study by The Boston Consulting Group (BCG), the banking industry in the Middle East returned to double digit revenue growth in 2013 with a 10.7 percent increase, stemming largely from international acquisitions.



Based on the banks' 2013 annual results released in the first quarter of 2014, 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 2013 BCG index includes 35 banks from across the GCC, capturing nearly 80 percent of the total regional banking sector", said Dr. Reinhold Leichtfuss.



Qatar and UAE banks show strongest growt



While revenues of banks in Qatar grew by 20 percent and banks in the UAE are back to double digit growth overall, Saudi, Omani and Bahraini banks are experiencing single digit growth rates. The spread of profit growth rates was particularly wide: while banks in Bahrain enjoyed 30 percent profit increase and 19 percent in the UAE, banks in Kuwait had to cope with double digit reductions.



In 2013, loan loss provisions varied significantly by country. In particular, banks in Qatar and Kuwait had to build higher provisions due to increasing delinquencies. UAE and Saudi banks by and large repeated the provision levels of 2012 of 3.3 and 1.7 billion dollars respectively



In 2013, the overall growth of revenues exceeded the growth in the segments by about 4 percent which is significant. This is largely due to several significant acquisitions of foreign banks, which are consolidated in the international divisions



In addition treasury revenues grew by 16 percent. "While we are observing only a growth around 7 percent in the core segments, we acknowledge that this growth is almost twice as high as in 2012, especially in corporate banking," Leichtfuss adds



Retail revenues and profits grow 7.2 percent “ profits grew 5.8 percent with a large spread between bank



In 2013, retail banking revenues in the GCC experienced a further uptick of 7.2 percent, largely due to an increase in the UAE. Qatar and Kuwait had retail banking revenues in the high single digits, close to 10 percent, followed by the Saudi banks with a healthy 5.9 percent. Bahrain stays at the same level as 2012, with no revenue growth. Oman declined by percent



GCC retail profits, which had been declining for several years, saw an uptick of 5.8 percent compared to 3.5 percent last year. Nevertheless, the profit level in 2013 remained slightly below 2006 levels which were exceptional retail years for banks in the GCC.



Corporate banking revenues grow at 6.9 percent and profits grow in double digit



The corporate segment reached a new top index level in revenues in 2013 by growing 6.9 percent. In 2013, banks in Saudi Arabia and Bahrain especially excelled in corporate banking revenues. On average, profits of GCC banks increased by 11 percent, due in particular to strong increases in revenue of banks in Saudi Arabia



Superiority of strategies, business models and execution decisive for widening gaps between Middle East bank



While about 10 to 15 banks achieved double digit growth rates both in revenues and in profits, 3 to 10 banks are incurring negative growth in revenues or profits overall or in customer segments



Leichtfuss comments: "If we take out the effect of 'country specific growth' which is often driven by government investments, of which banks benefit from at varying degrees, both long and short term developments show that the banks that have a superior strategy and who were able to build strong business models and execute decisively, grow the strongest. This is of course easier said than done."



The leading banks over the last 10 years have grown at double or triple the rate of the average,



Some major elements for their success ar

Develop a superior strategy and be persistent and fast in the implementation. Keep course in difficult times as well; remove hurdles for implementation always in a swift way. Always follow through

The establishment of superior multichannel models, which allow strong customer and revenue growth at lower cost and thus cost/income ratios. Effective usage of direct sales forces and direct channels in combination with an efficient and not oversized branch networks are crucial in this context.

Strong sales discipline and high service, both in retail and in corporate bankin

Proactive conquering of new segments, such as business banking associated with well developed risk system

Increasing acquisitions of banks or portfolios “ nationally and internationally


About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries. BCG serves the Middle East from Abu Dhabi and Dubai. Our offices there, in conjunction with the BCG office in Casablanca, play a key role in serving clients in the rapidly developing Gulf region as well as Middle East North Africa (MENA). To date BCG has successfully conducted assignments in the Middle East serving clients across a wide range of sectors, including government, financial services, energy, industrial goods, telecommunications, real estate, healthcare and private equity. For more information, please visit bcg.com.

 


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