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The retail and the SME sectors in the Gulf Banking sectors are in slightly better shape that the corporate and commercial sectors. The reason for this is that the commercial sector has been hit hard by the regional and global downturn. This is due to the correction in the real estate sector and the investment sectors respectively. Having said this, there are still significant challenges facing the retail sectors in the GCC regions.
The retail banking sector in the Gulf is still developing despite the advanced level of sophistication at many banks. The retail banking sector has be affected by regulatory frameworks and new guidelines which has led to the development within the sector. It is expected that the retail banking services by the Gulf banks will become more innovative as the regulatory framework for retail banking in the region is expanded or broadened.
Banks in all gulf banking markets will readily comment that one of the main stumbling blocks for the true development of retail banking in the Gulf is the problematic bankruptcy laws. Banks are positive that changes in the laws by the government will spur growth in the sector with banks given more confidence in financing retail and SME clients.
The current Euro debt crisis and the downturn in the global economy has had a negative knock on effect on the UAE banking sector. Investor confidence and sentiment has weakened due to the problems facing the world economy. As a result of this, the retail asset growth has been weaker than expected.
Given these conditions, the GCC banks have become more circumspect in retail banking loans. They are unwilling to lend more and have put in place more stringent rules and guidelines. Competition for customers is tough among the banks and most banks have put in place strategies that will distinguish them from the rest of the pack. High competition for customers has led to banks becoming more customer- oriented. Mashreq Bank, for example, is following a more integrated approach and providing end to end service and so are most of the regions other banks.
How about Asset quality with in the retail banking sector? Well the fact is that asset quality within the retail banking sector has become more stabilized over the past year. This is the result of more a more conservative path taken by the banks. Banks within the region have put in place more conservative policies to watch over customer borrowing and loans. During the boom periods of the GCC economies, the banks were not watchful or vigilant about the number of credit cards and personal loans that each customer took out. This made it easy for customers to get loans and credit cards at the time. However, the rules have changed and the risk appetite has fallen and banks and regulators have introduced far more stringent lending criteria and monitoring processes. But having said that, the banks have remained in a very vulnerable position because there is a lack of credit bureau to aggregate risk information and exposures. Basically, there is a lack of proper risk assessment for each customer, which has led the banks into a more risk exposed position.
So what are the predictions for the UAE retail banking sector? Retail revenue for the UAE banks is expected to be weaker for 2011 and this is because of the personal loans limits that were introduced by the central bank at the start of 2011. Stricter lending policies by the bank and personal loan limits have led to subdued loan asset growth. The UAE retail banking revenues are expected to be lower by between 15-20 percent in 2011.
In contrast, the Saudi retail loans are expected to remain strong on positive demographics. The Saudi retail sector is favored by good liquidity and asset quality which are both factors that are expected to keep the countries retail loan growth healthy in 2012. According to SAMA data, retail lending is currently increasing by around 11 percent year on year, social welfare spending by the government along with bonus salaries will keep demand retail loans high.
The Gulf region has a low interest rate environment and the result of this is that banks has been compressed at the margins. However, in the growing retail sectors- where margins are much higher, banks have been supported with significant retail loan books on the balance sheet.
The retail banking sector in the Gulf is still developing despite the advanced level of sophistication at many banks. The retail banking sector has be affected by regulatory frameworks and new guidelines which has led to the development within the sector. It is expected that the retail banking services by the Gulf banks will become more innovative as the regulatory framework for retail banking in the region is expanded or broadened.
Banks in all gulf banking markets will readily comment that one of the main stumbling blocks for the true development of retail banking in the Gulf is the problematic bankruptcy laws. Banks are positive that changes in the laws by the government will spur growth in the sector with banks given more confidence in financing retail and SME clients.
The current Euro debt crisis and the downturn in the global economy has had a negative knock on effect on the UAE banking sector. Investor confidence and sentiment has weakened due to the problems facing the world economy. As a result of this, the retail asset growth has been weaker than expected.
Given these conditions, the GCC banks have become more circumspect in retail banking loans. They are unwilling to lend more and have put in place more stringent rules and guidelines. Competition for customers is tough among the banks and most banks have put in place strategies that will distinguish them from the rest of the pack. High competition for customers has led to banks becoming more customer- oriented. Mashreq Bank, for example, is following a more integrated approach and providing end to end service and so are most of the regions other banks.
How about Asset quality with in the retail banking sector? Well the fact is that asset quality within the retail banking sector has become more stabilized over the past year. This is the result of more a more conservative path taken by the banks. Banks within the region have put in place more conservative policies to watch over customer borrowing and loans. During the boom periods of the GCC economies, the banks were not watchful or vigilant about the number of credit cards and personal loans that each customer took out. This made it easy for customers to get loans and credit cards at the time. However, the rules have changed and the risk appetite has fallen and banks and regulators have introduced far more stringent lending criteria and monitoring processes. But having said that, the banks have remained in a very vulnerable position because there is a lack of credit bureau to aggregate risk information and exposures. Basically, there is a lack of proper risk assessment for each customer, which has led the banks into a more risk exposed position.
So what are the predictions for the UAE retail banking sector? Retail revenue for the UAE banks is expected to be weaker for 2011 and this is because of the personal loans limits that were introduced by the central bank at the start of 2011. Stricter lending policies by the bank and personal loan limits have led to subdued loan asset growth. The UAE retail banking revenues are expected to be lower by between 15-20 percent in 2011.
In contrast, the Saudi retail loans are expected to remain strong on positive demographics. The Saudi retail sector is favored by good liquidity and asset quality which are both factors that are expected to keep the countries retail loan growth healthy in 2012. According to SAMA data, retail lending is currently increasing by around 11 percent year on year, social welfare spending by the government along with bonus salaries will keep demand retail loans high.
The Gulf region has a low interest rate environment and the result of this is that banks has been compressed at the margins. However, in the growing retail sectors- where margins are much higher, banks have been supported with significant retail loan books on the balance sheet.
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