Dubai: Revenue Growth Rate of GCC banks declined to low single-digit and profits shrunk in 2016. The overall revenue growth of banks are expected to remain in low single digits next year compared to historically high double digit growth, according to Boston Consulting Group.
A recent study by The Boston Consulting Group found that lower oil prices are adversely impacting the banking industry. In 2016, GCC banks’ revenues grew by 5.2 per cent, down about 2 percentage points from 2015, after a drop of three percentage points from 2014. Revenue growth is expected to remain in single digits of 7 to 8 per cent during the current year.
Due to a sharp increase in provisions by 20.8 per cent, a cost growth of 6.3 per cent higher than revenue growth and a drop in extra ordinary income, profits declined by 3.2 per cent for the first time since 2008.
“The decline in profit is the first we see since 2008 for GCC banks. Nevertheless, this is not a reason for major concern, since the level of profits went up steadily for the last few years and is still very healthy.” said Dr Reinhold Leichtfuss, Senior Partner & Managing Director at BCG’s Middle East office.
The 2016 BCG Banking Performance Index includes 46 banks from across the GCC and captures about 80 per cent of the total regional banking sector.
In 2016, Qatar banks led the pack in terms of revenue growth with 24.4 per cent increase largely resulting from Qatar National Bank’s (QNB) acquisition of Turkey’s Finance Bank. However, due to a massive increase in loan-loss provisions (LLPs) in Qatar, largely for the same reason, profits declined slightly by 1.8 per cent.
The effect of the integration of Finansbank by Qatar National Bank is visible in the performance of Qatar’s banking sector last year. Without this acquisition, Qatar would have only grown by 5.4 per cent and profit growth would be negative with 8.2 per cent” stated Dr Leichtfuss.
In sharp contrast to Qatari banks, in 2015, UAE banks collectively had no revenue growth and saw a decline in profits by 4.5 per cent after an increase in provisions by 12.8 per cent.
For the GCC as a whole, with the exception of Qatar all countries grew in the low single digits. All countries in the GCC had to deal with a negative development in profits.
“In 2016, only 10 per cent of GCC banks were able to achieve double digit revenue and profit growth. Slightly more than 50 per cent of banks experienced declining profits and many more banks entered the slower growth range,” he said.
The main customer segments — retail and corporate banking — grew revenues with 5.7 per cent and 4.5 per cent growth rates, respectively. Despite this moderate growth, the index of GCC banks still exceed that of their international counterparts.
