Banks in the Gulf Arab region are unlikely to witness the high growth levels seen before the financial crisis as real-estate-driven lending and income growth subsides, the Boston Consulting Group said on Tuesday.
Middle East banks saw rapid growth rates between 2005 and 2008 but were severely hurt during the financial crisis and were forced to curb lending and set aside more money to meet loan losses due to some high-profile corporate defaults.
"Since 2008, the time of very strong growth is over in the region and ... returning to pre-crisis development in the foreseeable future is unlikely," Reinhold Leichtfuss, Senior Partner & Managing Director in BCG's Dubai office said in the report.
BCG's survey of 35 banks in the Middle East showed that banking revenues stagnated in the region during 2010, while profits increased significantly due to lower loan provisions, which despite a 17 percent drop still stood at $8bn.
However, provisions may be on the decline, Leichtfuss said in a separate email statement.
"The LLP (loan loss provision) levels of 2009 and 2010 have been extraordinarily high and we anticipate that banks will return to more normal levels," he said.
Banks will also need to increase their productivity and boost efficiency of their processes instead of just reducing costs, the report said.
Qatar and Omani banks recorded the strongest revenue growth in 2010 with an increase of 14 percent and 13 percent, respectively, the report stated, while Saudi Arabian lenders saw relatively stable revenue growth.
In the event of a slower rate of growth, competition in the industry will increase, with higher discrepancy in the performance among banks, the BCG report said.
"The winners will be those who tackle these inefficiencies in their operating models quickly and find the right competitive positioning and go-to-market model," Leichtfuss said.