UAE banks increase profits by 24% in 2011, reveals study by The Boston Consulting Group
Source: The Boston Consulting Group , Author: Posted by BI-ME staff
Posted: Tue April 3, 2012 5:22 pm

UAE. According to a new study by The Boston Consulting Group (BCG), the banking industry in the UAE experienced an impressive 24% increase in profits in 2011, exceeding profit levels since 2005. Bank revenues also saw a healthy growth of 6% in 2011.

The positive news for the UAE banking sector comes despite an increase in banks’ loan loss provisions (LLPs) – the latter increased by 4% in 2011. Moreover, the operating expenses for UAE banks rose by 12%.

Based on 2011 annual results as reported by the banks in the first quarter of 2012, the new study is part of BCG’s annual banking performance indices measuring the development of banking revenues (operating income) and profits for leading Middle East banks.

BCG launched the first edition of the banking performance index in the Middle East in April 2009, creating a customized index specifically for the regional banking markets, with 2005 revenues and profits as starting benchmarks.

The index covers 34 banks across Saudi Arabia, Bahrain, Kuwait, Qatar, Oman, and UAE, capturing nearly 80% of the total regional banking sector.

Upturn in UAE’s banking sector
The UAE banking sector continued its multi-year steady performance in 2011. Dr. Reinhold Leichtfuss, Senior Partner & Managing Director in BCG's Dubai office and leader of BCG’s Financial Institutions practice in the Middle East said: "Strong profits were witnessed by the UAE banking sector in 2011 despite an increase loan loss provisions.

Compared to 2010, the profitability of corporate banking increased by 13% in 2011, while revenues grew by 7%. Retail banking profits saw a more modest gain of 5%, while retail revenues actually declined by 2%.”

Middle East findings
Overall, the banking industry in the Middle East experienced a healthy revenue growth of 7% in 2011, after revenues had stagnated the year before. Profits also increased significantly in 2011 and reached the highest level since the all-time high of 2007.

Loan loss provisions (LLPs) fell by 2% although a number of banks that were previously not affected and had relatively low LLPs needed to make more provisions.

                     Banking Performance Indices: Middle East vs. International Banks


   

Leichtfuss commented: “The performance of Middle East banks in 2011 testifies to the strength of the GCC economies and banking systems. Furthermore, this performance is set against the backdrop of lower revenue and profit index levels amongst international banks. This widening gap means that despite some continuing challenges, the leading banks in the GCC can leverage this partial withdrawal of international banks to gain market shares and expand footprints.”

While banks in Saudi Arabia, UAE, Kuwait and Bahrain had healthy revenue growth rates between 4% and 8% in 2011, the banking systems in Oman and Qatar grew revenues by 11% and 22%, respectively. In addition, banks in all countries, except in Kuwait and Oman, achieved double digit aggregate profit growth rates.  

Loan loss provisions varied by country: While some banks in Qatar, Kuwait and UAE saw significant increases, those in Saudi Arabia, Oman and Bahrain were able to reduce their loan loss provisions. In absolute terms, loan loss provisions were highest in UAE and Kuwait.

             Banking Performance Indices: Revenues and Profits per country (2011 vs. 2010)

   

Banking Performance Indices: Loan Loss Provisions and Operating Expenses per country (2011 vs. 2010)

 

In 2011, retail banking revenues in the GCC which had remained rather flat during the last few years experienced an uptick of some 3%, largely due to the 3% increase in Saudi Arabia and supported by strong growth in Oman and Qatar of around 20%. In contrast, retail revenues in UAE and Bahrain dropped by 2% and 7% respectively. On the whole, the variance between growth rates of individual banks in retail is very high and ranges from -25% to +39%.

GCC retail profits, which had been declining in the previous years, saw a significant uptick of 11 % overall and positive growth rates in all countries. Nevertheless, the profit level in 2011 remained slightly below 2005 and 2006 levels which were exceptional retail years in the GCC.

The corporate segment reached top index levels both in revenues and in profits in 2011. The growth was witnessed across all GCC countries with corporate banking profits rebounding particularly well in Saudi Arabia.

Banking Performance Indices: Retail vs. Corporate Banking

  

Need for higher competitiveness
Although the 2011 upturn has been quite strong for banks in Saudi Arabia and across the GCC, returning to pre-crisis levels of growth in the foreseeable future is unlikely. This is even more so given that the region’s regulatory bodies are becoming more cautious with regards to lending and fee policies of banks. Therefore, the challenge of improving competitiveness in an environment of slower growth remains.

  

The BCG study emphasizes that leading banks in the region have great opportunities, both within their respective markets as well as beyond. In particular, those who succeed in

• Sharpening their offers and value propositions for different customer segments
• Becoming truly customer centric
• Increasing sales orientation and becoming more systematic in cross selling 
• Exploiting the full potential of multichannel management  and new technologies
• Reengineering and automating processes
• Improving performance management

can truly make a difference and win market share. These improvement levers apply to both retail and for corporate banking.

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep in¬sight into the dynamics of companies and markets with close collaboration at all levels of the client organization.

This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 75 offices in 42 countries.

BCG serves the Middle East from Abu Dhabi and Dubai. Our offices there, in conjunction with the BCG office in Casablanca, play a key role in serving clients in the rapidly developing Gulf region as well as Middle East North Africa (MENA). To date BCG has successfully conducted assignments in the Middle East serving clients across a wide range of sectors, including government, financial services, energy, industrial goods, telecommunications, real estate, healthcare and private equity.

For more information, please visit www.bcg.com

About bcgperspectives.com
Bcgperspectives.com is a new website—available on PC, mobile phone, and iPad—that features the latest thinking from BCG experts as well as from CEOs, academics, and other leaders. It covers issues at the top of senior management’s agenda. It also provides unprecedented access to BCG’s extensive archive of thought leadership stretching back almost 50 years to the days of Bruce Henderson, the firm’s founder and one of the architects of modern management consulting. All of our content—including videos, podcasts, commentaries, and reports—can be accessed via PC, mobile, iPad, Facebook, Twitter, and LinkedIn.

 

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