A new report from Marmore MENA Intelligence has revealed a way for banks in Gulf Cooperation Council (GCC) countries to sustain long-term growth. According to the Kuwait Financial Center subsidiary, GCC nations could offer Islamic banking services in Europe and the US.
Traditionally, GCC banks predominantly focus on their local countries. In particular, 45 percent of their branches are located in the region itself. The region comprises Saudi Arabia, the United Arab Emirates (UAE), Kuwait, Oman, Qatar, and Bahrain.
Growth opportunity
Currently, there are only 56 branches in operation in markets in Europe and the US. The report noted that this indicates a significant growth opportunity for these banks to expand their presence in these regions.
Nonetheless, the research firm also pointed out that these markets are highly competitive. This is because the world’s largest banks are already well-established there. GCC banks can leverage the unique offerings and ethical, sustainable principles of Islamic banking.
“Given the low levels of penetration of Islamic banking in such regions, GCC banks could do well to position themselves in the lucrative Islamic banking,” stated Maramore.
Islamic banking represents a financial system that operates in accordance with the principles of Islamic Sharia law. It emphasizes profit-sharing and interest-free loans. It is a steadily growing segment of the global finance sector, with estimates showing that Islamic banking assets worldwide could reach $5 trillion in the next two years.
Read: Islamic banking assets to hit $5 trillion by 2025, data reveals
Challenges faced by GCC banks
As GCC banking institutions are focused on their local markets, Maramore indicated that this exposes them to various challenges, particularly fluctuations in oil prices.
The report stated, “Downturns in oil prices, like the one we witnessed during the COVID-19 pandemic, can adversely affect economic performance which will have a ripple effect on the financial sector.”
The limited service scope within their home countries or the broader GCC region has also contributed to GCC banks’ stagnant growth.
While a few institutions have expanded regionally, the majority of them are still concentrated within the region. Outside the region, GCC banks can be notably found in Türkiye (25.5 percent), Pakistan (13.6 percent) and Egypt (8.8 percent).
These particular territories have a significantly lower banking penetration than GCC countries, creating an opportunity for banks to expand into these markets.
In the GCC, member states exhibit an average of 3.8 banks per one million people. Meanwhile, Türkiye, Egypt and Pakistan have 0.7, 0.3, and 0.1 banks per one million people, respectively.
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