Gulf banks outperformed global counterparts in 2012

BCG's 2012 Banking Index, which covers the 32 largest banks in the GCC, found that revenues at these firms grew by 6.9% compared to 2011 while profits increased by 8.1%, largely due to an over proportional increase in extraordinary income.

"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," said Dr Reinhold Leichtfuss, senior partner and managing director at BCG.

Noting that loan loss provisions varied significantly by country, the report found that banks in Saudi Arabia and Kuwait had to build higher provisions due to increasing delinquencies in sectors such as real estate and financial services. On the other hand, UAE banks were able to significantly reduce their existing high provisioning levels by 13%, though LLPs remain high in the country.

Revenues also varied by country, with banks in Qatar leading the way with 12% growth, followed by Saudi Arabia and Oman achieving high single digit growth rates, while banks in the UAE, Kuwait and Bahrain grew 5% or below. In terms of profit, all countries achieved growth rates above 7%, except for Kuwait (3%).

Given that Gulf banks outperformed their counterparts in the rest of the world in 2012, they would be wise to make the investments that are needed to expand their businesses, BCG noted.

"This is an opportune time for Middle East banks to excel," especially in light of the fact that cost-income ratios of GCC banks are much lower compared to international banks, Leichtfuss said. While the cost-income ratio is 63% for banks in Europe, 61% for USA and 52% for Asia and Australia, it is only 34% for GCC banks.

In an effort to be more competitive, many GCC banks are prioritising better customer service as a critical part of their agenda, some are identifying new growth areas in order to avoid a decline in revenues, while still others 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," Leichtfuss said. "Only appropriate platforms in IT and operations, such as online banking and automation of processes will allow scalability of activities."