There is tremendous individual wealth in the Middle East region, particularly the six countries of the GCC that will continue to grow in the years to come. And thanks to the financial crisis, which undercut confidence in many established private banking relationships, a significant part of this private banking business is up for grabs, revealed a recent report by Booz & Company.
“We estimate the total liquid wealth in the region to be between $1 trillion and $1.2 trillion, with most of that wealth in the hands of local families. By market size, Saudi Arabia and the United Arab Emirates are the largest wealth markets, with $500 billion to $550 billion and $260 billion to $280 billion, respectively,” said Peter Vayanos, partner at Booz & Company.
“To shape their wealth offerings appropriately and succeed, private bankers must understand how the financial crisis has altered investor behavior—at least temporarily but perhaps permanently,” the report added.
However, Middle East HNWIs have very specific characteristics. Most wealthy nationals are business owners or entrepreneurs. They often have multiple businesses and overlapping needs that range from corporate finance to personal wealth management. Their companies also often involve large extended families with various roles and interests. What’s more, the governance and finances of these family businesses can be opaque. Arab HNWIs often want some or all of their investments to adhere to Shari’a law. Unfortunately, designing Shari’a-compliant products that can match the returns, diversification, and liquidity of conventional products is difficult and – for certain asset classes –still almost impossible.
According to report these characteristics make the GCC private banking market unique but not impenetrable.
To succeed, it added, private banks must choose their cornerstones for growth, articulate sources of competitive differentiation, and select a distinctive, capabilities-driven strategic play. “More specifically, local banks – which often have rather unspecified private banking offerings – will need to take a number of steps to further increase the share of wallet with their wealthy clients: define their target client segments, improve customer-centricity, upgrade their value propositions, continue investing in state-of-the-art IT and sales and advisory tools, and transition to a more comprehensive, advice-based wealth management model.”
“Meanwhile, the established, global players will need to defend their market share against local players by continuing to raise the bar on value proposition and operating model, while retaining best-in-class resources and that includes keeping the best talent from being poached.”
Their challenge is to cost-effectively leverage their brand and global capabilities while maintaining a localized, “high touch” relationship model and catering more specifically to local needs in the GCC.
“As the region continues to recover quickly from the financial crisis, especially compared to some Western markets, we expect competition to heat up over the next few years as local players upgrade offerings and the global players—the incumbent private banking powerhouses—reassert themselves to defend and pursue market share”, said Vayanos.
“Last but not least, private banking in the Gulf requires immersion in the local cultures, where traditional private banking values—secrecy, security, diligence, trust, and honest and fair advisory relationships—blend well with cultural values and predispositions in the region,” added Diemers.
“By taking right steps, private bankers from around the world, and from institutions of various sizes, can win a place in this lucrative, promising market. With the financial crisis coming to an end, now is the time to rethink your strategic positioning and seize the private banking opportunities in the GCC,” added Vayanos.