Can banks in the GCC profit from asset management's growth?

The private wealth landscape in the Middle East, Africa, and South Asia is vast, boasting an estimated $8 trillion, as per data from the Dubai International Financial Centre (DIFC). Despite a flourishing wealth management sector, banks in the Gulf Cooperation Council (GCC) find themselves in a distant second place, trailing global counterparts armed with a technological edge in the era of artificial intelligence (AI).

Some analysts see a silver lining for GCC banks amid this tech disruption. With Dubai alone hosting 55,000 high net-worth individuals (HNWIs) and over half a trillion dollars in wealth, there is potential for local banks to capitalize. Michael Ashley Schulman, Partner and Chief Investment Officer at Running Point Capital Advisors, points out the opportunity, emphasizing the 300-plus wealth and asset management firms registered at the DIFC, including heavyweights like Edmond de Rothschild and Nomura Singapore. Traditionally, GCC banks struggled to compete with global counterparts, as local wealth preferred private banks in secure international locations. However, the dynamics might be shifting. A report predicts the Middle East and Africa to experience the fastest growth in IT investment, averaging 5.4% annually until 2027. Cybersecurity, a critical concern for HNWIs, is an area where GCC banks shine, benefiting from strong capital buffers.

Despite these advantages, there's scepticism about whether GCC banks can adapt to the evolving landscape. Analysts note a historical lag in responding to changes such as environmental, social, and governance requirements, taxation adjustments, and new legal structures. The incorporation of AI necessitates a substantial re-evaluation, with Schulman suggesting a more innovative approach, urging regional firms to experiment with relinquishing some control. The competition for HNWI clients is expected to intensify. In the Middle East, Latin America, and Africa, HNWI's financial growth outpaced North America and Europe. The conflict between Russia and Ukraine has redirected substantial cash flows to the UAE, considered a haven, influencing regional wealth management portfolios.

GCC banks face challenges in enhancing relationship manager productivity, a widespread industry issue. The DIFC, eyeing a significant expansion, launched the first global family business and private wealth centre, forecasting a transfer of $1 trillion in assets to the next generation in the Middle East over the next decade. Family businesses, integral to the GCC economies, present an opportunity for banks to leverage their expertise. However, the shift into wealth management remains a significant leap, especially for smaller family offices lacking expertise and experience. UBS' Global Family Office Report identifies a lack of processes, governance, and risk management policies in many family offices, particularly those managing assets between $100 million and $250 million.

Amid these changes, GCC banks are awakening to the potential of private banking and wealth management. Initiatives include strategic reviews, technology adoption, recruitment drives, and skills upgrades. The question remains: Can they deliver on this $8 trillion opportunity? The outcome hangs in the balance.