Gulf customers’ loyalties will be tested due to increased choices and product offerings by domestic and cross-border competitors. Arab banks suffer from many weaknesses that mirror Arab economies: they are small, fragmented and inadequately diversified. Size matters, and smaller banks will struggle to survive because of the cost of IT, the cost of professionals and a weak ability to diversify risk. The answer is consolidation, to create larger institutions with better resources to bridge the skills gap in a cost-effective manner, improve value proposition, leverage their local knowledge, and continue enhancing channels and distribution capabilities.
Consolidation poses its own challenges. While international banks have been active in the lucrative business areas, such as wealth management and project finance, they are likely to target prime corporate customers and consumers with offerings such as credit cards. Gulf banks need to maintain their advantage of knowing the customer by investing in technology. Unfortunately, they do not have the necessary size and muscle for this.
