Gulf Cooperation Council Banks Eye Expansion in High-Growth Markets
In a bid to diversify their business models and boost profitability, Gulf Cooperation Council (GCC) banks are setting their sights on emerging markets such as Turkiye, Egypt, and India, according to a recent report by Fitch Ratings. The report highlights the favorable economic conditions and attractive growth opportunities that are driving this increased interest in these countries.
The shifting macroeconomic policies in Turkiye and the enhanced stability in Egypt have sparked a surge in appetite for expansion among GCC banks. Despite the higher acquisition costs associated with entering these markets, GCC banks are actively exploring opportunities to capitalize on their growth potential and offset slower growth at home.
Strong Performance of GCC Banking Sector
The GCC banking sector has been delivering high returns on equity and impressive valuation multiples compared to global standards, as highlighted in a McKinsey report. The strategic diversification of GCC economies beyond oil, coupled with robust regulatory frameworks, has bolstered banking stability and profitability.
Elevated interest rates have further boosted bank profits, enabling GCC banks to outperform the global average in return on equity over the past decade. Despite the historically low global banking valuations, GCC banks continue to generate value with returns exceeding their cost of equity.
Challenges and Opportunities in Expansion
While GCC banks are increasingly looking to expand in Turkiye, Egypt, and India, the rising acquisition costs in these markets pose challenges. Price-to-book ratios have surged, particularly in Turkiye and India, reflecting improved macroeconomic prospects and reduced operational risks.
However, acquisitions in these markets could potentially weaken GCC banks’ viability ratings. Economic forecasts play a crucial role in shaping expansion strategies, with government backing supporting nearly all GCC banks’ long-term issuer default ratings.
World Bank Growth Projections
The World Bank’s updated growth projections highlight significant opportunities and risks for various countries. Saudi Arabia’s economic growth forecast for 2025 has been revised upward, signaling robust long-term prospects. The UAE, Kuwait, Bahrain, and Qatar are also expected to see modest growth increases in the coming years.