The rich are getting richer and more numerous in the Middle East. Over the past year, the number of ultra-high net worth individuals (those with at least $30m in investible assets) has increased by more than 15 per cent in the region to reach 5,300 people. Their total wealth rose even faster, growing by 24 per cent to $880bn, according to a joint report by Swiss bank UBS and Wealth-X, a UK-based research firm.
Other parts of the world may have more multimillionaires, but a combination of high oil revenues and strongly performing stock markets, among other things, means that few places are growing as fast as the Middle East.
|Private financial wealth ($ trillion)|
|Middle East and Africa||4.3||4.4||4.8||6.5|
|Asia-Pacific (ex Japan)||21.7||24.6||28||48.1|
|e=Estimated. Source: Boston Consulting Group|
The Middle East is just behind Asia and probably ahead of Latin America in terms of growth prospects, says one international banker specialising in wealth management. There is close to double-digit growth, driven by high and relatively stable oil prices and places like the UAE and Qatar diversifying their economies, welcoming foreign investment and becoming hubs between Asia and Europe.
As his comments suggest, these days the focus of the private banking industry in the region is on the Gulf economies. Although there are clients in Lebanon, Jordan, Egypt and elsewhere, the political volatility in some of those markets, combined with the weak growth in their economies, mean they are not seen as a compelling prospect for most private bankers.
Within the Gulf, the greatest number of super-rich are in Saudi Arabia and the UAE. Almost half of all ultra-high net worth people in the region live in those two countries, with 1,360 in Saudi Arabia and 1,050 in the UAE, according to Wealth-X. The Saudi Arabians among them have an average net worth of $210m, which puts them slightly ahead of their Emirati peers, who each have $181m on average.
|Ultra-high net worth individuals|
|Number of individuals||Total wealth ($bn)||Average wealth ($m)|
|Rest of Middle East||550||42||76|
|Sources: Wealth-X; UBS|
Saudi Arabia and the UAE also rank highly when it comes to even wealthier people, with two-thirds of the regions billionaires calling those countries home. Saudi Arabia has 64 of them, with an average wealth of $3.2bn each, placing it in ninth position in the world. The UAE can claim 37 billionaires with an average net worth of $1.2bn. Riyadh has 25 billionaires, more than any other city in the region, although Dubai is only just behind with 24. Both cities rank in the top 10 in the world in terms of the number of billionaires.
When the regions wealth is measured in other ways, different countries stand out. For example, Qatar now has the highest density of millionaires in the world, according to a report by the US Boston Consulting Group published earlier this year. It says 14.3 per cent of households in the country have private wealth of at least $1m. The next richest by this measure are Switzerland, with 11.6 per cent of households, and Kuwait, with 11.5 per cent.
|Number of billionaires||Total wealth ($bn)||Average wealth ($bn)|
|Sources: Wealth-X; UBS|
Qatar also comes top within the region when counting the proportion of households with at least $100m in private wealth, with 8 per cent of homes in this category. It is followed among Gulf countries by Kuwait, with 7 per cent, and the UAE, with 3 per cent.
All this offers rich pickings for institutions providing wealth management services. Traditionally, this has been a part of the banking industry dominated by European and US banks. A ranking of the top 20 wealth management firms around the world by London-based research firm Scorpio Partnership is led by UBS, with $1.7 trillion of assets under management, followed by Bank of America, Wells Fargo, Morgan Stanley, all of the US and Switzerlands Credit Suisse.
Such European and North American institutions often fair well in the Middle East. They have prestigious brand names and their international reach means they can offer a range of services in markets others find hard to match.
We are noticing more and more that emerging markets clients are very similar everywhere around the world, says Bruno Daher, chief executive officer for Credit Suisse in the Middle East and North Africa region.
Clients from Brazil have a lot in common with those in Qatar or Indonesia. They tend to be a bit more entrepreneurial than clients in Europe. They will look for opportunities in other emerging market countries in Africa and Asia. Its not only passive investments in other countries. A lot of the ultra-high net worth clients are entrepreneurs with their own businesses and they will look at opportunities in the same sectors in other emerging market countries.
|Rank||Country||% of households|
|Source: Boston Consulting Group|
There are some noticeable differences in the international banks strategies, however. There is a divide between those that have a large presence on the ground in the region and those that have opted for a more limited network of offices, flying in advisers as needed.
In the past two or three years, theres been a reassessment by international banks of how to build market share in Middle East wealth management, and whether to be on the ground or to have a more transient private bank model, says Sebastian Dovey, managing partner at Scorpio Partnership. A number of European operators, such as HSBC and some Swiss private banks have decided they can cover the Middle East by having a strong booking capability in Switzerland, London or the Channel Islands and having private wealth managers and advisers visiting the region.
He adds, however, that not all banks have taken this attitude. Others have committed to an onshore presence, including some US financial institutions. So theres a mixed school of thought among the international operators as to how to crack the wealth management market.
Whichever strategy is pursued, the market position of the big international banks is starting to come under pressure from local institutions. This trend is more pronounced in Asia, where the likes of Bank of Singapore and Bank of China have been doing particularly well, but it is becoming more apparent in the Middle East.
There is a significant phenomenon taking place in the private banking industry worldwide and it applies also to the Middle East. The big winners, in terms of the market share and growth in the last few years, are often the leading domestic banks, says one Dubai-based private banker.
You can see banks such as Nbad [National Bank of Abu Dhabi] and Emirates NBD becoming significant players in the region. The international banks are struggling to deliver a significant differentiating value proposition compared with the leading domestic retail banks who, once they get it right, can really capture a big share of this market.
There are a lot of GCC players fighting for that market share. Dubai-based research firm Insight Discovery says, of the 61 private banks operating in the Gulf, 31 of them are from the region. Most of the banks base themselves in the UAE, with 44 headquartered there, compared with four each in Saudi Arabia and Bahrain and just three apiece in the other countries.
The larger local banks can benefit from their well-established brands and a presence on the ground their international rivals cannot match. They can also offer a full spectrum of corporate banking services. The regional players often do particularly well in appealing to younger customers who, while still very affluent, may not be right at the top of the pile.
Since 2009, there has been a sustained growth in the middle market, people with $1m-10m in investible wealth, says Dovey. They consider the domestic offerings from the likes of Emirates NBD and Nbad as worth using.
However, if they are to really make the most of their potential, regional banks will probably have to work harder to get their service levels right. The brand perception of local banks is still pretty mediocre, says Dovey. Customers see the financial groups as being sophisticated, but they are disappointed by the delivery channel. The quality of the relationship managers is not good enough. That creates a tension that has to be ironed out.
The private banking market in the Middle East is not just about appealing to rich Saudi Arabians or Emiratis. In the region, there are also a large number of wealthy expatriates banks can target.
In general, wealth management is doing extremely well in the Middle East, but there is more to the Middle East than the just the region itself, says Daher. There are lots of links between the GCC and places like Africa, Turkey and India. There is a big NRI [non-resident Indian] community in the GCC, for example. So there is diversity in terms of the cross-regional business that is being done.
Different banks target different groups of clients. According to Insight Discovery, 24 of the private banks in the GCC are chasing after particular market segments, with at least seven going after high net worth individuals from the Levant and others targeting non-resident Indians or Pakistanis.
Not all of these banks will prosper. Insight Discovery says at least five international private banks have closed or sold their businesses in the GCC in the past few years. More failures are likely, given how crowded the market is. But for those that can compete effectively, the opportunities are expected to rise. Boston Consulting Group predicts the amount of private financial wealth in the Middle East and Africa will grow from $4.8 trillion in 2012 to $6.5 trillion by 2017, a 35 per cent increase.
Almost half of all ultra-high net worth people in the region live in Saudi Arabia and the UAE
Source: MEED; Wealth-X