Dr. Daniel Diemers, Jihad K. Khalil
January 28, 2015
When we released our first report on the state of private banking in the Gulf Cooperation Council in 2010, the industry had recently emerged from one of the most difficult periods in modern financial history. A global crisis of asset-price declines and the near, or actual, collapse of well-known international wealth management firms had altered the competitive field and the behavior of wealthy clients. Despite those challenges, we anticipated that the region’s already quick recovery — especially compared to some Western markets — would make the GCC an attractive market for local and global private bankers.
Five years on, that conclusion has been vindicated. Indeed, the GCC wealth market has grown even faster than anticipated. Although challenges — including increased competition, pressure on profit margins, and intensifying regulatory and compliance requirements — remain for private bankers entering or looking to expand in this market, the opportunities are robust and enticing. From 2010 to 2014, liquid wealth in the region grew at an average of 17.5 percent per annum, doubling from US$1.1 trillion to $2.2 trillion. That is partly owing to the global rebound in equities and partly thanks to GCCspecific drivers, particularly the impact of high oil prices during that period, as well as increasing government spending on megaprojects, infrastructure, further economic diversification, and job creation.
Going forward, there are significant opportunities in the rapidly expanding affluent segment for private bankers that develop the right capabilities — such as more digitized offerings and open product platforms. This segment has been growing faster than the high-networth (HNW) and ultra-high-net-worth (UHNW) segments, with a compound annual growth rate of 21 percent. The number of its households has increased by 50 percent, outpacing other wealth segments. There is another, more subtle, opportunity. The GCC wealth market contains more sub-segments than is always obvious. By identifying one or more of these sub-segments, tailoring meaningful value propositions for them, and putting the proper capabilities in place to serve them, private bankers can make significant gains in the GCC.
When we looked at the growth of wealth globally in our “Global wealth management outlook 2014–2015” study, the GCC showed the most consistent growth since the financial crisis compared to all other regions. Global and regional macroeconomics, supported by other GCC-specific drivers, suggest that the Gulf region will remain an attractive, though challenging, wealth management market for the foreseeable future. The most exciting trend for banks over the past five years has been the doubling of affluent wealth, a trend that shows no sign of faltering. Additionally, the increased sophistication of various niche segments within the high-net-worth group poses an intriguing opportunity for leading players.
Private banks that recognize these opportunities and work to differentiate themselves with a sophisticated digital presence, superior products, and a top-notch talent development strategy will reap major rewards. Those that do not may miss out on the region’s robust growth trajectory and fall behind early movers.