Profit jumped 6 per cent on lower costs
GCC bank profits showed resilience in 2017 even as revenues fall sharply
GCC banks weathered the storm of slower revenue growth last year, posting 6 per cent profit thanks to lower costs, according to Boston Consulting Group's regional banking index.
Profit rose even as revenues climbed just 2.3 per cent, a 3 percentage point drop from 2016.
“GCC banks are adapting well to a slowing revenue growth regime and profits climbed more than twice as strong through reduced loan loss provisions as well as tight cost management,” said Reinhold Leichtfuss, senior partner and managing director at BCG’s Middle East office in Dubai.
BCG Banking Performance Index measures 44 banks across the GCC, representing 80 per cent of the regional banking market.
Banks in the UAE were the most profitable in the GCC, netting in $20.4 billion in 2017 compared to $20.3bn in 2016, a 0.5 per cent increase year-on-year. That was followed by Saudi Arabian banks which had $19.2bn in profit in 2017, a 3 per cent gain from $18.7 bn in 2016.
BCG findings and analysis echo the findings and views of peers. The accounts KPMG said last week UAE's top banks, which boosted profitability in 2017, are likely to continue this trend this year, with digitisation and downsizing trumping costs of the 5 per cent VAT introduced this year and new accounting standards.
Qatari banks saw a 2.6 per cent growth in profit in 2017 to $10.8bn compared to $10.5bn in 2016, according to BCG. Kuwaiti lenders showed the most impressive growth in profitability in 2017, recording a 6.6 per cent gain to $6.7bn versus $6.3bn.
Meanwhile, Bahrain banks had a 0.9 per cent increase in profit to $4.3bn in 2017 compared to $4.2bn in 2016. And Omani banks witnessed 2.1 per cent growth in profit to $2bn in 2017.
The consultancy noted that going forward the banks that will show the greatest results will be those who harness digitization.
“In the coming three to five years, we consider the digitization of processes as the most important task that banks need to achieve; this will enable advanced banks to achieve the next level of customer experience as well as cost efficiency,” said Peter Vayanos, head of the financial institutions practice for BCG Middle East.
Banks in the UAE have been accelerating in recent years the shift from a traditional branch model to one based more on online banking. Lenders including Mashreq, HSBC and Abu Dhabi Islamic Bank have been investing in artificial intelligence and partnering with fintech companies to streamline operations. Emirates NBD, Dubai’s biggest bank by assets, said in July it plans to spend Dh1bn on technology over the next three years to help reduce costs.
Abdulaziz Al Ghurair, the head of the UAE Banks Federation, said last month that he expects higher loan growth and profitability for banks in 2018 as the economy turns the corner and lenders reduce the amount of non-performing loans that piled up during the SME debt crisis in the wake of the 2014 oil crash.
The banker, who is also the chief executive of Dubai-based Mashreq Bank, forecast loan growth of 5 per cent to 6 per cent on aggregate for banks in the UAE this year compared to 4 per cent last year.
It’s not just Mr Al Ghurair who is upbeat about the prospects of UAE banks this year. Other chief executives and analysts who track the fortunes of lenders are also optimistic. Mark Robinson, the chief executive of Commercial Bank International, recently told The National that he is expecting 5 per cent loan growth for the bank. Analysts including Saeeda Jaffar at consultants Alvarez & Marsal see non-performing loans declining and rising interest rates giving a boost to net interest margins.