What’s the road ahead for the GCC Banking Sector post Crisis?

New A.T. Kearney study on banking released

 Dubai (28 February 2010) —  A.T. Kearney, one of the world’s leading management consulting firms in the financial industry, says the crisis has provided GCC banks with the impetus to take a big step on the road to maturity and consider operational excellence given the current scenario of Non Performing Loans (NPL’s) and deteriorating asset quality.

The latest financial results of the leading GCC banks reveal an overall positive trend. In fact, quite a few banks enjoyed organic top-line growth in 2009 and have continued to invest in future growth. This unanticipated and rapid recovery can be explained by different reasons. Timely actions taken by governments, central banks and individual banks have helped soften the impact of the global economic crisis and ensure that the GCC banks return to profitability faster than their Western counterparts. Furthermore, the same macroeconomic factors which contributed to the dramatic growth of the sector in the last five years still remain valid.

Over the last five years, banking assets have grown twice as fast as the region’s gross domestic product. This dramatic growth can be explained by the combined effect of a credit hungry economy with low levels of banking penetration. During the same period, banks were much more profitable than their western counterparts, mainly because of relatively lower levels of competition and costs.

“The good news for GCC banks is that these factors are still relevant and will continue to help the banking sector as a whole, even in the post-crisis world,” said Cyril Garbois, Principal, Financial Institutions Group, A.T. Kearney Middle East. However, it is not right to pretend that it is back to business as usual. “Slower growth in the future, deteriorating asset quality, changing competitive landscape and rising regulatory constraints all pose new challenges for the GCC banks”, continued Garbois.

To adjust to the new market conditions, banks need to reassess their strategic direction and realign their operating models. For bold, forward-looking banks, the current market provides a unique opportunity to differentiate themselves from their competitors—now and into the future. There are five main areas which GCC banks need to address across the value chain, including more focused product and asset portfolios, better customer service and risk management.

“The challenges that lie for the GCC banks span across the full spectrum of banking services, be it Islamic or Conventional banking. These banks are indeed playing in the same competitive arena. Not surprisingly, their strengths and their development needs are very similar,” stated Dr. Alexander von Pock, Principal, Financial Institutions Group, A.T. Kearney Middle East.

The economic crisis can actually result in a boom for the GCC banking sector and this opportunity should not be missed. It should act as an opportunity for all key players to review their operations. The future definitely remains challenging in the sector, and managing this transition will be far from easy.

“More than ever, GCC banks need governance structure, financial transparency and performance management tools to ensure the entire organization is aligned with its strategic goals”, commented Garbois. “Operational excellence will be the real driver of differentiation in the coming years.”

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Supporting Materials

Please click to see supporting illustrations or read the full study: GCC Banks: On the Road to Maturity.

About A.T. Kearney

A.T. Kearney is a global management consulting firm that uses strategic insight, tailored solutions and a collaborative working style to help clients achieve sustainable results. Since 1926, we have been trusted advisors on CEO-agenda issues to the world’s leading corporations across all major industries. A.T. Kearney’s offices are located in major business centers in 37 countries. From our fast growing Middle East offices in Abu Dhabi, Bahrain, Dubai and Riyadh, A.T. Kearney actively contributes to the operational excellence and profitable growth of the private sector industries and services in the region as well as the agility of governments. For more information, visit www.atkearney.com or follow A.T. Kearney Middle East on Twitter profile: AT_Kearney_ME.

About Our Experts

Cyril Garbois
Principal
Experienced in the Banking and Insurance industry, with a focus on growth strategy and organization

Dr. Alexander von Pock
Principal
Experienced in financial services (both conventional and Islamic), with focus on corporate and business strategy, M&A, post-merger-integration, reorganization and operations improvement