The Future of Corporate and Investment Banking in the GCC
The corporate and investment banking (CIB) sector in the Gulf Cooperation Council (GCC) is experiencing unprecedented growth, significantly outperforming historical trends. Between 2021 and 2024, CIB revenues have surged by approximately 14% annually, expected to reach between $55 billion and $65 billion. Projections suggest that this figure could escalate to between $90 billion and $100 billion by 2030, indicating a broader trend where CIB now contributes over 50% to the total banking revenue in the region.
Current Economic Landscape: Balancing Opportunities and Challenges
While the GCC’s CIB environment shows several tailwinds—such as an expanding non-oil GDP and increased foreign direct investment—the sector is also confronted with potential obstacles, including oil price uncertainty and geopolitical tensions. Factors such as rising corporate taxes and a high loan-to-deposit ratio, which exceeds 100% in certain GCC countries, pose notable risks to liquidity and profitability.
Identifying Strategic Focus Areas for Growth
In navigating these challenges and leveraging growth opportunities, banks must concentrate on five key priorities:
1. Strengthening Transaction Banking and Foreign Exchange Operations
Transaction banking remains a pivotal revenue stream within GCC CIB, contributing an estimated $25 billion to $35 billion annually. It is anticipated to grow at around 7% yearly. Notably, over 60% of this revenue is derived from bank account balances, more than the global average. Banks are urged to enhance their offerings by developing industry-focused propositions and increasing product sophistication, adapting to customer demands through innovative solutions.
2. Enhancing Capital Utilization with Innovative Financing Solutions
The demand for credit in the GCC is growing rapidly, especially in sectors like construction and real estate. To manage this effectively, banks should pivot toward capital-light financing solutions and consider transitioning from an originate-to-hold model to an originate-to-distribute model. This shift can improve return on equity (ROE) while facilitating greater lending flexibility as international investor interest increases.
3. Expanding Expertise Beyond Traditional Finance
The GCC capital markets currently trail behind global averages but are poised for significant growth, particularly in debt markets. While local banks lead in debt capital markets, opportunities exist to expand into equity capital markets, especially as IPO activity continues to rise. CIBs must capitalize on these emerging trends to diversify their services and boost revenue.
4. Diversifying Lending Portfolios Prudently
With an increasing emphasis on environmental, social, and governance (ESG) practices, GCC banks are encouraged to refine their lending frameworks, ensuring that they balance growth across various sectors while maintaining a prudent risk appetite. Emerging sectors, including food services and education, are rapidly developing, thereby necessitating a proactive approach to lending strategy.
5. Improving Operational Efficiency Through Technology
Enhancing operational productivity and investing in technological advances are essential for GCC banks to remain competitive. This includes optimizing client interactions and front-office activities, where future leaders are expected to significantly improve client-facing engagement by adopting artificial intelligence and other digital tools, resulting in better productivity metrics.
Conclusion: Embracing Change for Continued Success
The GCC CIB sector is well-positioned for future growth, but adapting to evolving market dynamics will be critical. By focusing on transaction banking, capital utilization, market expansion, prudent lending, and operational efficiency, banks can not only sustain growth but also shape the future landscape of corporate and investment banking in the region.
