According to a survey conducted by the Accenture financial services company, banks in the six countries which comprise the Gulf Cooperation Council (GCC) plan to increase their lending to small and medium enterprises, (SMEs) and concentrate more on young people and women to help increase their returns.
Reduced Cost-to-Income Ratio
The survey showed that lenders within the GCC, which includes the United Arab Emirates and Saudi Arabia, will begin to reduce their cost-to-income ratio down to 35% from the current 36% average. The goal is to improve the return on equity investments to an impressive 20% by the year 2015 from today’s 16%, according to the survey, which included the opinions of 47 senior executives at banks in the region.
“The SMEs have traditionally been a small part of the business as the government sector dominates the economy,”said Amr El Saadani, managing director for Accenture’s financial services practice.
“Governments are now diversifying their economies and most banks have indicated they are interested in pushing this business,” added El Saadani.
Still Recovering from Global Crisis
GCC banks are still recovering from the international credit crisis of the past few years, which reduced lending considerably, harmed the investment banking industry, and led to more defaulted loans. Now economic growth is on the rise, spurred by increased government expenditures in response to recent political discontent, and higher prices for oil. This economic boom has also increased lending.
But the loans to SMEs only comprise about 2% of the total amount of lending in the GCC. This is a tiny percentage, especially when compared to about 27% in the countries which comprise the Organization of Economic Cooperation and Development, said El Saadani.
Women and Youth Will Play a Greater Role
It is important to keep in mind that over half of the population of the GCC is under 30 years old; and women-held assets is on the verge of an increase to close to $800 billion by the year 2014, compared to only $500 billion in 2009, added El Saadani.
“Young people are extremely tech-savvy,” El Saadani said.
“Women increasingly are also highly educated, increasingly employed and are becoming extremely demanding customers.”