Dubai: Loan loss provisions (LLPs) of GCC banks catapulted last year but varied significantly among the countries. Loan impairments are likely to decline this year as impact from defaults by small and medium enterprises seen coming down this year.

Qatar had the highest increase in LLPs last year with 140.2 per cent followed by Saudi Arabia with 39.9 per cent. The Kuwaiti banks on the other hand reduced provisions by 17.3 per cent.

“While in last year’s banking index report, we had expected increasing provisions in 2016, the magnitude of the increase exceeded expectations. From this year we expect a moderation in LLP,” said Dr Reinhold Leichtfuss, Senior Partner & Managing Director at BCG’s Middle East office.

Overall operating expenses of GCC banks grew by 6.3 per cent; higher than the previous year but significantly below the long term compounded average growth (CAGR) of about 12 per cent. All other countries managed to remain below or close to their revenue growth while Kuwait banks managed to reduce costs overall. In Qatar, costs were higher than the GCC average and was largely linked to overseas acquisitions and integration

The BCG study shows that the magnitude of slowdown in revenue growth in last three years was relatively lower compared to over a longer period. GCC banks experienced a halving of the long term growth rates with the exception of the Saudi Arabia banks.

Looking at the revenue and profitability trends, Leichtfuss said relatively larger banks in their respective markets are likely to do better compared to smaller counterparts.

“According to BCG’s analysis, it is obvious that banks with superior strategies and strong business models can truly execute decisively and grow the strongest. Leaders still managed to achieve revenue and profit growth, however some of the fast runners of the past have slowed down,” he said.

Going forward, banks’ capability to invest in digital strategies and technology will be decisive in reaping cost advantages and retaining customers that will be decisive in revenue and profitability.

“Over the past decade, the leading banks have grown at double or triple the rate of the average ones. In almost all cases, such a development is based on a superior and consistently-executed strategy,” said Dr Leichtfuss.