Revenue growth for banks operating in the Gulf region until 2024 will be subdued, even in the most optimistic scenario, according to new data released by Boston Consulting Group.
Compared to the previous five years, which saw GCC banks increase their revenues by a compound annual growth rate (CAGR) of 5.5 percent, the best they can expect to 2024 is 1.6 percent, BCG said.
While retail banks have reacted to the Covid-19 crisis with speed, dexterity, and purpose, further challenges await in their quest to enhance revenues, upgrade digital capabilities, and build a strong, stable future, it added.
That’s in a quick-rebound scenario when revenues are estimated to grow from $26.4 billion in 2019 to $28.6 billion in 2024.
However in a slow-recovery scenario, revenues are expected to shrink by a CAGR of -0.1 percent to $26.3 billion while in a deeper-impact scenario, the revenue pool is projected to shrink by a CAGR of -2.1 percent.
“The pandemic has taken a toll on the retail banking sector, and we believe that a slow-recovery scenario is most likely to occur for GCC retail banks,” said Godfrey Sullivan, managing director and partner, BCG.
“In this scenario, the revenue pool of regional retail banks will approximately reach the 2019 level only by 2024, essentially a flat market.”
Findings from the report indicate that the most affected retail banking products in regional banks because of the pandemic are consumer loans and deposit revenues.
While loans (mortgages and consumer loans) and deposits accounted for 80 percent of retail banking revenues in 2019, recent events highlight that payment, mortgage, and investment products are now likely to be the main sources driving retail banking revenue growth.
Godfrey Sullivan, managing director and partner, BCG.
The acceleration of digital payments and e-commerce adoption in the GCC will be a factor to contribute and benefit the revenue growth, said BCG.
“In a low revenue growth market, bank growth comes from taking the market share, and they compete by providing more appealing and relevant offerings, which is better for the end-users,” said Sullivan.
“With shifting consumer preferences and increasing population growth, a lot more focus on better implementation of data and analytics in the organization and cross-selling their full breadth of products to their existing customer base is key to remain competitive.”
He added that in the current market conditions, retail banks face tremendous challenges to improve customer experiences, grow revenue, build sustainable capabilities, reduce costs, and enhance the quality of their controls.
Sullivan said banks must start to reimagine their strategies and consider a major step-change in their cost structure.
“The retail bank of the future requires organizational change and building digital capabilities, which takes time. With low-interest rates likely to continue, fee income becomes key, including enhancing wealth management offerings as banks look to advise their clients on better ways of growing and protecting their wealth. In addition, addressing key priorities, such as digitising all major value streams will help regional banks manage the added pressure from the global pandemic and start to build the bank of the future,” added Sullivan.
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