Wednesday, June 13, 2012

Dubai banks lag behind offshore peers in attracting region's wealth

Although there are trillions of dollars in private financial wealth in the Middle East and Africa, a relatively large proportion of these assets are held in offshore accounts as opposed to Dubai banks.

According to a recent report by Boston Consulting Group, private financial wealth in the Middle East and Africa rose 4.7% in 2011 to $4.5 trillion despite the instability caused by the Arab Spring. As wealth in the region has climbed, Qatar, Kuwait, the UAE, and Bahrain are now among the top ten countries in the world by proportion of millionaire households.

However, the report also found that although the region has a large amount of private financial wealth, much of it is kept in offshore accounts. In fact, the Middle East and Africa had the highest proportion of offshore wealth in the world, with over a third of all assets booked abroad in 2011.

In terms of percentage of private wealth booked offshore, Saudi Arabia (65%) took the lead in the region, followed by Kuwait (53%), UAE (52%), Tunisia (45%), Bahrain (37%), Lebanon (34%) and Morocco (30%).

High net worth individuals in the Middle East have the choice between an onshore and/or offshore offering. As the product programme and service offering of the domestic banks increase, one will see a larger share of money kept onshore.

However, in order to succeed, local banks have to take a medium- to long-term view on this segment. They need to invest in qualified advisors, broadening their product program and providing local solutions which international banks cannot provide. A simple "me-too" offering will not succeed.

The prerequisite of success is a qualified product and service offering. Most Dubai-based banks need to innovate and offer a good reason for wealthy individuals to bank with them instead of established international players. Dubai banks need to find their competitive differentiation - this could be around Islamic wealth products, products with local assets/real estate, or regional private equity. We believe that a simple "me-too" offering will not succeed.

Furthermore, it is important to realise that the established offshore centres like Zurich and London have a long track record of preserving wealth for banking clients. The Middle East is a nascent centre from that perspective.

The Boston Consulting Group believes that there is a white space for local banks to capture a higher share of wealthy individuals' portfolios. However, copying the business models of international banks may not be the best strategy; instead local banks need to look at creating a new form of private banking "the Dubai way".

It will require a transformational move by Dubai banks to seriously outperform the incumbents.

1 comment:

  1. Dubai Offshore Company also provides the best Auditors In Dubai who considers and takes all the necessary banking procedures on their own.