Trust the borrowers: GCC banks post double-digit growth, and losses
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, while 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 Reinhold Leichtfuss, senior partner and MD 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.
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.
“The 2013 BCG index includes 35 banks from across the GCC, capturing nearly 80 percent of the total regional banking sector,” Leichtfuss added.
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.