Qatari banks outgrow Mideast peers in 2012 revenue

By Pratap John/Chief Business Reporter Qatari banks outperformed their Middle East peers with a 12% revenue growth last year, as the regional lenders settled at single digit revenue growth in 2012, a new study has shown. According to the Boston Consulting Group (BCG), the banking industry in the Middle East settled at single digit revenue growth in 2012 with a 6.9% increase. The increase in profits was slightly higher at 8.1%, stemming largely from extraordinary income sources. Based on 2012 annual results as reported by the banks in the first quarter of 2013, the new 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 index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia and the UAE. “The 2012 BCG index includes some 32 banks from across the GCC capturing nearly 80% of the total regional banking sector”, said Dr Reinhold Leichtfuss, senior partner & managing director at BCG’s Dubai office and leader of BCG’s Financial Institutions practice in the Middle East. He said, “While the performance of Middle East banks settled at high single digit growth figures in 2012, it still compared very well with the international banks which experienced a further revenue decline. This provides the Middle East banks the opportunity to undertake the necessary investments in capabilities and regional expansion.” While banks in Qatar grew revenues by 12% and banks in Saudi Arabia and Oman achieved high single digit growth rates, banks in the UAE, Kuwait and Bahrain achieved a revenue growth rate of 5% or below. Banks in all countries achieved above 7% profit growth rates, except in Kuwait with 3%.    In 2012, loan loss provisions varied significantly by country. In particular, banks in Saudi Arabia and Kuwait had to build higher provisions due to increasing delinquencies in sectors such as real estate, construction, banks, financial services, and manufacturing. The UAE banks were, on aggregate, able to significantly reduce the existing high provisioning levels by 13%. Bahrain banks also saw higher LLPs but with a less steep growth rate. In 2012, retail banking revenues in the GCC which had remained rather flat during the last few years experienced a further uptick of some 4%, largely due to an increase in the three biggest markets – the UAE, Saudi Arabia and Kuwait. Oman repeated the strong double digit growth of the previous year. On the whole, the variance between growth rates of individual banks in retail was very high and ranged from -39% to +19%. GCC retail profits, which had been declining for several years, saw another significant uptick of 8% compared to 11% last year. Nevertheless, the profit level in 2012 remained slightly below 2005 and 2006 levels which were exceptional retail years in the GCC. Corporate banking revenues grow at slower pace while profits decline slightly The corporate segment reached the top index level in revenues in 2012 but only with a minor growth of 3%. In terms of country breakdown, the UAE and Kuwait banks experienced a decline in corporate banking revenues while the other countries experienced a healthy increase of 6% or more. Profits declined slightly driven again by the countries with the highest increase in loan loss provisions — which are Saudi Arabia and Kuwait. In an environment of slower market growth smart strategies and better capabilities are essential to grow more than the competition. Leading Middle East banks are striving for regional expansion to find new areas for growth. Many Middle East banks are prioritising better customer service as a critical part of their agenda; quite a number actually want to become the best bank in customer experience in their countries. Other banks are in the process of identifying new growth areas in order to avoid a decline in revenues and there are a number of banks which are focusing on their IT and operations platforms in order to prevent costs from outgrowing revenues continuously. “Middle East banks should approach these challenges in a professional way and have the foresight to invest in strategic areas. Only appropriate platforms in IT and operations, such as online banking and automation of processes will allow scalability of activities. “This is an opportune time for Middle East banks to excel: their cost income ratios are still far below their international counterparts, be it in Europe, the US, Australia or Asia,” Leichtfuss added.