Banking Sector of the Middle Eastern Economies— An Analysis

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The banking sector of the Middle Eastern countries are not only adapting new regulatory strategies like customer-orientation but are also opening up to challenges like risk management. Currently, the banking and financial sector is a potent employer. The following post is an analysis of the banking sector.

The Middle Eastern countries commonly referred to as the Gulf Cooperation Countries (GCC); continue to be a favourable destination for expatriates around the world. Though the region’s political predicaments continue to fraught and endanger lives of thousands, the simultaneous economic boom is still attracting millions of workers from all over the world.

 

Growth of the Banking Sector

Known as the oil-rich countries, the region’s economy has taken a drastic change with sectors like tourism, hospitality, banking and finance, and Information Technology (IT) creating ripples in within the economy. Currently, the Middle East is one of the fastest growing markets in the banking and financial sectors. This is a gradual shift from the oil dominated industries of the region. Let’s explore the banking sector of the GCC.

The growth in the banking sector has started affecting the changing economies of the Middle East. Jobs in Dubai and the rest of the GCC regions have taken a new lift with the boom in the banking sector.

According to reports published by leading consulting firms like Ernst and Young (E&Y) and KPMG, it was revealed that domestic banks dominate the financial segment of the Middle East till 2008. It was also found that the Islamic banks, like Emirates NBD (UAE), Abu Dhabi Commercial Bank (UAE), Bank Muscat, (Oman), Gulf Bank (Qatar) are the dominant players. Interestingly, these banks also employ a substantial percentage of expatriate employees. Altogether these banks contribute to nearly 25% of the region’s Gross Domestic Product (GDP).

Table 1: Banking Sector Assets of the Middle East, 2004-2008 (in percent of GDP)

Trends in Credit Growth

The GCC region has recorded a rapid growth in the recent past. More so, the private banking sector has started making moves within a market that was till now being dominated by the domestic banks. From 2003–2008, countries like UAE and Qatar experienced a significant credit growth at 45 and 35 percent respectively. Interestingly, when compared or measured in relation to non-oil GDPs, the credit definitely goes to the banking sector in the Gulf, among all other sector contributing to the GDP of the region.

The economic activities and opening up of the region to a variety of industries have been responsible for the growth in the banking sector of the GCC. This has also been responsible for creating job opportunities in the Middle East.

 

Key Drivers of the Banking Sector

As expected, the banking industry of the Middle East is gearing up for drastic change against the ever-changing dynamics of the demographics of the region. According to reports published by Accenture, it was revealed that banks in the Middle Eastern countries antedate a more competitive market, more strict regulations and a probable shortage in skills by 2015. Therefore in response to such a growth pattern, banks are considering shifting to a model that would be more service-oriented operating and more customer-oriented.

Much of this customer orientation is based on the widening and deepening of the customer base. It will now focus on the women customers, youth and Small and Medium Enterprises (SMEs)—segments that have not been paid less attention earlier.

On the other hand, successful banks like Emirates NBD (UAE) and the Abu Dhabi Commercial Bank (UAE) aim to focus in change factors like the regulatory environment and a more intensified attempt in the right talent acquisition. Many leading banks have already taken major initiatives to reach out to the new-age customers. High usage of the Internet and penetration of the social media marketing has helped banks to reach out to multiple tech-savvy customers through mobile banking applications and of course through Facebook and Twitter.

 

An Altered Banking Landscape

Given the major challenges – customer and service orientation operating model of the banking sector of the GCC, some of the initiatives that the banks intend to focus on are:

  • – Bring into line the operating model as per with strategic business goals

  • – Work upon customer analytics after studying the customer behaviour

  • – Strengthen distribution channels and work towards being proactive out Internet Marketing strategies

  • – Seize maximum growth opportunities in an evolving regulatory structure

If they work towards these and implement these factors effectively, it can actually work wonders for the banking sector of the region. One must understand that the appropriate operating model defines how a particular organization excels in executing its business strategies. Primarily, a proper operating model strategy helps in optimizing the distribution of people and work volume across an organization’s portfolio.

In the current economic conditions, customers in general have become better informed and more demanding. So, in order to keep pace with the changing dynamics of the customers’ and meet their expectations, service sector industries have begun focusing on customer segmentation and strategic marketing. The trends follows by the Middle Eastern banking system is an example of the same.

Fig 1: Structure Depicting a New Customer Oriented Approach

 

Banks across the GCC are fast adopting the necessary changes and implementing processes that would ensure overall growth of the economy. They are focusing on a customer-oriented approach in order to meet the challenges in an evolving banking landscape of the Middle East. Experts opine that following the current trends, there is immense scope for growth in the Middle Eastern banking sector in the coming years.

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Categories: Working in the Gulf

About Sampurna Majumder

Sampurna Majumder is a professional writer currently concentrating on the employment in the gulf for expatriates. She has written various articles, news stories and blog posts for the employment sector.

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