2016 to be another challenging year for Gulf banks

Dubai - Based on the banks' 2015 annual results released in the first quarter of 2016, the newest study is part of BCG's annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading GCC banks.

Dubai: It's going to be another challenging year for the banking industry in 2016 after a decline in revenue and profit growth in 2015, Boston Consulting Group's top executive told reporters on Monday.
The banking industry in the GCC grew at a lower rate in 2015 than it did in 2014 with a 7.2 per cent increase, stemming almost exclusively from major customer segments such as retail and corporate banking, according to a new study by the Boston Consulting Group (BCG).
"A superior performance culture and rigorous execution will continue to be equally decisive. It will be required, due to the fact that in 2016, oil price and environment are likely to remain challenging," said Dr Reinhold Leichtfuss, a senior partner and managing director at BCG's Middle East office.
Based on banks' 2015 annual results released in the first quarter of 2016, the 2015 BCG index includes 45 banks from across the GCC, capturing about 80 per cent of the total regional banking sector.
Some banks are doing very well while others are still struggling, Dr Leichtfuss said, adding that Islamic banks grew faster than conventional banks in the region in terms of revenues in 2015.
Oman leads the pack
Last year, Oman banks led the pack in terms of growth numbers with revenues up 9.6 per cent and profits up 10.5 per cent. UAE banks' revenues also grew by 8.1 per cent while those of Kuwait banks recorded a 11.4 per cent profit growth.
The spread of revenue and profit growth rates between the GCC countries was significantly smaller than that of last year, ranging from four to 11 per cent. There was no negative growth on a country level.
Instead, in 2015, the development of loan-loss provisions (LLPs) varied significantly between the countries, resulting in a small increase of 0.6 per cent. The two biggest countries, the UAE and Saudi Arabia, ended up with a small increase of two per cent and 4.8 per cent respectively. Bahrain banks grew LLPs by 39 per cent and Oman banks by 21 per cent. This is compensated across the GCC by a strong decline in Qatar and Kuwait.


"In 2014, we had observed a decline in LLPs across almost all countries. Going forward, a slight increase can be expected due to current trends in economic development. A first sign is that the majority of banks in the UAE provisioned more in 2015 than they did the year before," Dr Leichtfuss said.
After a number of years with growth in operating expenses exceeding revenues, 2015 came out with a moderate aggregate cost growth of six per cent, with Qatar and Kuwait banks managing almost zero and Bahrain recording a negative growth in cost of one per cent.
A number of banks preempted the consequences of a low oil price environment and restricted costs and investments. Some larger banks as well as those that had significantly increased costs in the past managed to achieve low and, in several cases, even negative growth.
Retail banking revenues
In 2015, retail banking revenues in the GCC experienced a further uptick of 8.1 per cent, largely due to an increase in Qatar (16 per cent), Oman (11 per cent) and the UAE (10 per cent).
GCC retail profits faced a decline in aggregate, largely because of a negative growth in the UAE. The growth rate in all the other countries was moderate; in fact, only banks in Qatar reached a double-digit growth rate with 13 per cent.
Last year, only Oman experienced double-digit growth rates in both corporate revenues and profits. In the UAE, however, there was a slight decline in revenues while profits grew by 22 per cent due to a decline in provisions.
All the other countries realised moderate revenue growth. Profit growth numbers, on the other hand, range from minus one per cent in Saudi Arabia to 18 per cent in Kuwait.
In 2015, the majority of GCC banks were able to achieve revenue growth. The increasing divergence when it comes to profit development is remarkable: while 11 to 17 banks still achieved double-digit growth, 11 to 15 banks witnessed negative growth overall or in customer segments.
- abdulbasit@khaleejtimes.com