The banking industry in the Gulf Cooperation Council (GCC) expects to face a whole new layer of activity that is driven by small businesses that are fast emerging as a major market force, said Amr Al Sa’adani, Managing Director, Financial Services — Middle East, Accenture Middle East.
Announcing the results of an Accenture survey of leading banking sector executives in the region, Al Sa’adani said the region’s banks are in a race to adapt to more demanding customers and are increasingly targeting the largely untapped youth, women and small and medium enterprises (SMEs).
“A gradual shift away from traditional government-driven, large oil-based enterprises to industries such as telecommunications, finance and tourism is creating new avenues for economic growth. As these industries grow, banks will be addressing a more diverse customer base, including long neglected segments such as the small and medium enterprises,” he said.
Loans to SMEs make up only 2 percent of overall lending in the GCC, compared with 27 percent in countries of the Organisation of Economic Cooperation and Development (OECD), Al Sa’adani said.
Mobile technologies and the growing number of internet users are opening up new distribution formats. The survey results indicate that in the Gulf with traditionally low customer penetration, banks will compete to acquire and retain customers. In view of the continuing global systemic risk and a tightening regional regulatory environment, it is even more important to ensure a strong competitive position. According to the survey, customers in the Gulf are becoming more demanding and less loyal to their institutions. Improving customer service was cited by executives surveyed as the single most critical challenge to attract and retain customers.
Meeting increasing demand from customers for online and mobile services was cited as a top challenge by 79 percent of respondents. And 71 percent of executives said declining customer loyalty would be a major challenge through 2015.The Accenture survey suggests that GCC banks must plan to respond aggressively to customer demands in order to stay competitive. More than 93 percent of executives see robust customer management as the top driver of profits and growth through 2015.
This was ranked higher than better risk management, pricing, and cost reduction, while 87 percent believe “improving customer centricity” will be the most important strategy. Lenders in the GCC plan to cut their cost-to-income ratio to 35 percent from an average 36 percent to help increase return on equity to 20 percent by 2015 from 16 percent, the survey showed.
Emerging relatively unscathed from the recent global financial crisis, GCC banks are considering operational changes in response to a banking landscape, which is expected to be altered by the dynamics of economic diversification and by the new technologies that are already overturning conventional ways to reach the consumer.
Demand for skilled banking staff is outstripping supply in the Gulf region at a time when the Western banking industry is drastically cutting its workforce, according to an Accenture survey of executives at major banks in the Gulf. According to the survey, a shortage of skills is the biggest challenge facing the GCC banking industry, aside from new regulation — especially as more global banks enter the market.
The skills shortage was cited by 58 percent of executives surveyed and 69 percent of those from the largest banks. In fact, nearly two-thirds (64 percent) of respondents agreed that the biggest impact of more global banks operating in the region will be the increased competition for skills and talent over the next few years.
A majority (89 percent) of respondents said that attracting and retaining talent will be the most important strategy their banks will use to increase shareholder value. “As European and American banks undergo large domestic workforce reductions, financial institutions in the Gulf region are struggling with a shortage of skills to support the growing demand for banking services,” said Amr Al Sa’adani, managing director of Accenture’s banking practice in the Middle East. Although there is excess work force in investment banking in the West, this can’t be utilised in this region as the shortage faced by the sector here is primarily in retail banking segment which needs different skill sets.
The survey reveals that banks in the GCC anticipate a more competitive market, stricter regulations and a burgeoning skills shortage by 2015.