GCC banks’ revenue growth rate dived to low single-digit, profits shrunk in 2016

Dr. Reinhold Leichtfuss, Senior Partner & Managing Director at BCG's Middle East office, while explaining the study’s findings
  • Main customer segments were retail and corporate banking
  • Retail and corporate banking grew in revenues with 5.7% and 4.5% growth rates, respectively
  • Despite moderate growth, the index of GCC banks still exceed that of their international counterparts

The banking industry in the GCC grew at a lower rate in 2016 than it did in 2015 with just a 5.2 percent increase, stemming almost exclusively from major customer segments such as retail and corporate banking, says a new study by the Boston Consulting Group (BCG).

While still remaining high, profits declined for the first time since 2008. The major reason for this development is a very significant increase in provisions by 20.8 percent.

Measuring revenues

Based on the banks’ 2016 annual results released in the first quarter of 2017, 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.

BCG launched the first edition of the banking performance index in the GCC in April 2009, creating a customized index specifically for the regional banking markets. The index covers the largest banks in Bahrain, Kuwait, Qatar, Oman, Saudi Arabia, and in the UAE.

“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, capturing about 80 percent of the total regional banking sector,” added Dr. Leichtfuss.

Qatar banks in lead

 In 2016, Qatar banks led the pack in terms of growth numbers with 24.4 percent in revenues, however, catapulted by the integration of acquired banks. Due to a massive increase in Loan-Loss Provisions (LLPs) in Qatar, largely for the same reason, profits declined slightly by 1.8 percent.

“Traditionally, we report the revenue and profit developments of GCC banks independently, whether the revenue growth is organic or through acquisitions done at home or abroad. For our 2016 findings, it is worth mentioning the effect of the biggest integration of Finansbank by Qatar National Bank. Without this acquisition, Qatar would have only grown by 5.4 percent and profit growth would be negative with 8.2 percent,” stated Dr. Leichtfuss.

Negative development

On the other side of the spectrum UAE banks collectively had no revenue growth and saw a decline in profits by 4.5 percent after an increase in provisions by 12.8 percent. 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.

LLPs catapulted but varied significantly between the countries. Qatar had the highest increase with 140.2 percent followed by Saudi Arabia with 39.9 percent. The Kuwaiti banks on the other hand reduced provisions by 17.3 percent. This is the strongest increase in LLPs since 2008 and about as high as the increase from 2008 to 2009. While in last year’s banking index report, we had expected increasing provisions in 2016, the magnitude of the increase exceeds expectations.