Gulf’s Corporate Banks At Peak Levels

Corporate banking divisions in the Gulf are performing at higher levels than those seen before the 2008 crash, with revenue and net profit at a peak.

That’s the findings from a recent report by the Boston Consulting Group (BCG) that show the same lenders’ retail banking divisions have barely touched the levels seen before the economic downturn.

However the study also shows that GCC corporate banks are falling behind global counterparts when compared on metric such as return on regulatory capital.

Almost two thirds of the region’s corporate banking divisions are not returning the expected 16 per cent cost of equity hurdle.

“While banks have been able to increase their revenues and even profits by extending more credit and keeping loan losses in check, they have been limited in their options of diversifying their source of revenues away from standard credit offerings,” said Markus Massi, partner and managing director at BCG’s and author of the study.

“This has led to no real improvement in the return on regulatory capital in spite of increasing revenues.”

However, the report also highlighted positive growth for GCC markets in what it called a ‘multi-speed world’ for corporate banking.

It said lenders will need to adopt a segment-specific approach to achieving returns so to create incentives aligned with the interests of investors.

Mohammed Turra, co-author of the report, said: “GCC banks tend to have wider variation in performance as compared to their counterparts in developed markets across almost all key matrices.

“This clearly shows the developing nature of the market and the development stage of individual banks, as we see top performing banks able to pull performance levers in a more superior manner.”