The GCC (Gulf Co-operation Council) banks will continue to pursue consolidation this year as they seek to remain competitive and relevant in the marketplace, according to KPMG, a multinational professional services network, and one of the Big Four accounting organisations.
In 2022, several GCC countries experienced mergers, both in the conventional and Islamic banking sector thus creating larger, stronger and more resilient financial institutions, KPMG said in its eighth edition of the GCC listed banks’ results.
"We expect that this consolidation drive will continue in 2023 across the region," it said.
Highlighting that the Gulf banks tend to adopt "cautious and selective" lending; the report said going forward, they would focus on government, high end customers, and collateralised lending to continue a sustained growth in the lending portfolio.
"This will enable banks to manage their provision coverage levels, while providing a stable return on capital," it said.
With a "cautious and selective" approach to lending, KPMG expects NPLs (non-performing loans) to remain at the current levels in 2023.
"Banks will look to closely manage their non-performing portfolios through sales, write offs, and proactive credit risk management," it said.
Cautioning that with the rising global interest rate environment, pressure will be created on funding costs and in turn on NIMs (net interest margins), the report said: "We do not expect the full impact of the rate hikes to be passed on to customers, although repricing will help somewhat mitigate the impact."
Airing cautious optimism, KPMG said with the Covid-19 pandemic behind, it expects that the GCC banking sector would continue to build on its strong foundation supported by a robust economic environment.
"While banks have emerged resilient in the face of economic challenges, accelerated innovation plans, technology focus and continued government investment will see further growth going forward," the report said.
KPMG expects the Gulf banks' cost and operational efficiencies to remain "high" on the management agenda as banks are likely to look at more innovative ways in which costs can be managed through collaboration with fintech players and the adoption of emerging technologies such as artificial intelligence.
"We expect banks to continue to aggressively pursue technological transformation and further explore the use of digital platforms to make banking more accessible to customers, while implementing robotics, artificial intelligence and other innovative ways to efficiently manage customers’ banking needs," the report said.
The regulators would continue to enhance their oversight on the banking sector with enhanced reporting, driven by global developments and the increased use of technology, it said.
The implementation of Basel IV regulations, increased focus on Anti Money Laundering (AML), Financial Crime, and Know Your Customer (eKYC), Cybersecurity, Open Banking, Tax, and Digital Currencies, amongst other areas, would be the focus in the year ahead, according to KPMG.
Stressing that environmental, social and governance (ESG) matters will continue to gain further prominence in 2023; it said stock exchanges and central banks are likely to drive this agenda as they look to mandate some form of common ESG reporting across the banking sector.
"ESG will not only be a focus for banks but for all stakeholders including investors and customers," it said.
