UAE bank branches have recorded the highest levels of revenue in the region, with $18.6 million per branch for retail services, according to an expert. That is a 27 percent increase compared to 2019-end levels.
In a statement, Saumitra Sehgal, head of financial services in the Middle East at Roland Berger, explained that the digital transformation has enabled the Gulf region’s banks to reduce their number of branches by 328 over three years. Notably, the UAE achieved the highest number of merged and reduced branches due to the digital transformation from 2019 to the end of 2022. The number of UAE bank branches decreased by 157, while branches in Saudi Arabia decreased by 82. In Bahrain, the number decreased by 57, while in Qatar by 20.
Between 2019 and 2022, the UAE has emerged as one of the leading countries in relying on technology to reduce the number of branches. Sehgal notes that the country has the potential to reduce the number of branches by another 10 to 15 percent within the next two years. Gulf banks have been reducing their branches by up to 10 percent on average over the past few years.
Shifting paradigms
The purpose of bank branches has undergone a fundamental shift, transitioning from routine transactions to more specialized services such as mortgage acquisition. Hence, simple transactions have become easier to complete digitally. This shift, led by digital transformation, is essential for both banks and customers in the UAE and the Gulf region. Thus, customers prefer digital banking while banks view it as a way to increase profitability, reduce operational costs, and enhance customer experience.
Sehgal states that the number of bank branches per 100,000 people in Gulf countries ranges from 7 to 12 branches. He expects this number to decrease further in the future. For example, the UAE has already reduced the number of bank branches by more than 23 percent.
Cost considerations
Highlighting the high costs of maintaining bank branches in the region, Sehgal emphasizes the imperative for consolidation and digitization. With annual branch costs totaling approximately $14.8 billion, Sehgal advocates for accelerated digitization as a means of unlocking substantial savings, estimated at over $3 billion per year. By leveraging technology and strategic mergers, Gulf banks can optimize resource allocation and drive sustainable growth.
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Future projections
Looking ahead, Sehgal predicts a continued decline in branch numbers across the Gulf region, albeit varying by country based on prior achievements. He anticipates a further reduction of 623 branches in the coming years, with the UAE spearheading the digital transformation agenda. Notably, an additional 80 bank branches in the UAE are set for consolidation, underscoring the nation’s commitment to technological innovation and operational efficiency.
While fully digital banks are gaining traction, particularly among younger demographics, Sehgal underscores the enduring relevance and growth of traditional branch-based banks.
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