By Karen Leigh
Consultancy says banks in the region must change mindset from high growth to greater efficiency
Executives from Bain and Company said UAE banks need to focus on efficiency, and not on growing their client bases, as the country moved into a new post-recession recovery phase.
“You need a new concept for the region – how to change the mindset from high growth to greater efficiency,” Julien Faye, Bain’s Head of Middle East FS practice, told Arabian Business.
The problem, they said, was that UAE banks operated on a “growth for growth’s sake” basis before the credit crash in fall 2008, and that no one had focused on increasing profit margins through the streamlining of daily operations.
“You had a phase of high growth, then the crisis, and now you’re entering a new phase where banks can re-invest in efficiency rather than market share,” Faye said.
Chinese banks are currently undergoing a similar boom growth to what the UAE experienced in the mid-2000s, but investing in operational management to increase margins.
It’s similar to what UAE financial companies could do to increase their own profits.
“When the UAE was growing, their number one concern was ‘how many customers can we get,’” said Philippe De Backer, Bain’s Global FS Practice Head. “In China, the focus is operational excellence. Now the attention needs to turn from pure growth to creating an efficient platform.”
Bain’s models show that in the Emirates, the larger the size of the bank, the smaller the profit margin. In the Gulf, it trails the highly profitable Saudi banks, while Qatar is currently undergoing a growth spurt similar to what Dubai saw in the middle of the decade.
Emmanuel Yoo, who heads Bain’s Middle East FS operations, said the changes needed were fairly simple.
“Right now there’s a reliance on net interest income,” he said. What needs to be changed are systems of “distribution. Then we need good integration with distinct channels, consolidate the operations, and need to leverage or share utilities.”
The latter is the practice of two or more banks teaming to share their resources in fields like payment or asset management.
“It’s what happens everywhere else around the world,” Yoo said.
Bain opened its Dubai office in 2005 and focuses on serving the GCC and Egypt.