JEDDAH: While the global banking industry has been stumbling from one crisis to another, major Middle Eastern banks have been performing consistently and strongly over the last four years, including 2008. However, leading international banks offer additional insights for growth, according to a new study by The Boston Consulting Group (BCG) whose report was released to the media at a meeting at Jeddah InterContinental here yesterday.
The study is part of BCG’s annual banking and retail banking indices measured by the development of banking revenues (operating income) and profits for leading global banks. BCG has now customized this index specifically for the Middle Eastern banking markets, with 2005 revenues and profits as starting benchmarks. The index covers the largest banks in Saudi Arabia, Bahrain, Kuwait, Qatar and the UAE, which constitute around 70 percent of banking assets in these countries.
Overall, banking revenues for the largest banks in the Middle East have grown by an annual average of 17 percent over the last four years. Profits in 2008, however, have dropped back to 2005 levels due to higher risk provisions.
Does this mean that the Middle East is just one year behind the global cycle? Reinhold Leichtfuss, senior partner in BCG’s Dubai office and leader of BCG’s financial services business in the Middle East, said: “Yes and no is the quick answer — there are some remarkable differences.”
While the vast majority of Middle Eastern banks refrained from investing heavily in secured credit facilities from the US, they are facing region-specific risks such as property market risks. However, several of them are more stable due to a traditionally higher share of retail and domestic banking in their overall business portfolio. While traditionally 50-55 percent of global banking revenues stem from retail banking, some of the biggest Middle Eastern banks derive 60-70 percent of their revenues from this business.”
According to the BCG index, the revenue situation in individual countries in the Middle East varies, he said.
Saudi banks represent the highest share in Middle Eastern banking and weighting in the indices. They recorded the lowest revenue growth at nine percent, partially because they experienced their strongest growth already in 2006 at group level as well as in retail banking during the course of the boom in IPOs (initial public offerings) and brokerage.
The UAE and Qatar banks achieved the highest revenue growth over the four years, both at group level and in retail banking, with Kuwait banks following closely behind.
In contrast, profits show a somewhat more troubling picture, as they dropped from their 2007 highs down to 2005 levels in 2008. UAE and Qatar banks were impacted less and lead in profit growth, both in group and in retail/domestic banking. The decline of profits is largely driven by a few individual banks and high loan loss provisions — of which more must be expected.
— With input from Mahmood Rafique
