Dubai Gulf banks are expected to return to pre-crisis levels of profitability this year, according to a study by A.T. Kearney, a global management consultant.

The study reckoned that the ongoing European crisis notwithstanding, growth opportunities exist in a number of markets and sustained overall growth in GCC banking is expected.

But the study also observed that asset growth remained subdued last year, staying below pre-crisis levels in all markets.

"While conditions differ from country to country and from bank to bank, we expect overall sustained growth. The key challenge for GCC banks will be balancing growth aspirations with increasing cost pressure. But, there are country-specific opportunities for banks that can manage a fast expansion," said Cyril Garbois, partner and head of A.T. Kearney's financial institutional practice in the Middle East.

The challenge

After years of hyper-speed growth, GCC banks had to pass the test of the economic crisis and now must prepare for yet another growth wave. To tap the strong growth potential in the market, regional banks need to enhance their capabilities and level of customer service, after several years of relatively low investments. Their challenge will be to do this in an environment where cost-to-income ratios remain under pressure and cost management is a priority.

The year ahead looks promising for the GCC banking sector. To leverage opportunities, A.T. Kearney experts suggest banks invest in retail banking infrastructure and capabilities, address untapped opportunities in wholesale banking and redefine priorities for external growth and international expansion.

"Country-specific opportunities exist, for example in Saudi Arabia where comparatively low banking penetration provides ample opportunities for growth," said Alexander von Pock, principal, A.T. Kearney.

Asset growth up

The 2011 results of banks across the region suggest that the provisions have peaked and asset growth is picking pace despite an crease in cost-to-income ratios. To overcome increased pressure on costs the A.T. Kearney experts suggest banks continue efforts to optimise productivity across the entire bank, from front to back office, including branch networks. Branch networks for example frequently fall short of delivering anticipated results — often only differing in size rather than purpose. The ideal branch network has different branch models depending on customer needs, ranging from light, kiosk-style sales outlets focusing on retail mass customers, to full-service branches covering all customer segments.

"Efficiency improvement can yield significant savings, for example a structured approach to sales effectiveness can have a bottom line impact of 15 to 20 per cent," said Dr Von Pock.

Balancing growth aspirations with increasing cost pressure is the key challenge for GCC banks in 2012 and winning banks will leverage specific growth opportunities while managing costs and improving productivity at the same time.