The banking sector in the Gulf region experienced seven percent revenue growth in 2011 after revenues had stagnated the year before, according to a new study by The Boston Consulting Group (BCG).
The study, which covers 34 banks across Saudi Arabia, Bahrain, Kuwait, Qatar, Oman, and the UAE, showed profits across the region also increased significantly in 2011 and reached the highest level since 2007.
Dr Reinhold Leichtfuss, senior partner and managing director in BCG's Dubai office, said: "The performance of Middle East banks in 2011 testifies to the strength of the GCC economies and banking systems.
"Furthermore, this performance is set against the backdrop of lower revenue and profit index levels among international banks.
"This widening gap means that despite some continuing challenges, the leading banks in the GCC can leverage this partial withdrawal of international banks to gain market shares and expand footprints."
While banks in Saudi Arabia, the UAE, Kuwait and Bahrain had healthy revenue growth rates between 4-8 percent in 2011, the banking systems in Oman and Qatar were the star performers with revenue growth of 11 percent and 22 percent respectively.
In addition, banks in all countries, except in Kuwait and Oman, achieved double digit aggregate profit growth rates, BCG added.
Loan loss provisions varied by country. While some banks in Qatar, Kuwait and UAE saw significant increases, those in Saudi Arabia, Oman and Bahrain were able to reduce their loan loss provisions.
In absolute terms, loan loss provisions were highest in the UAE and Kuwait.
The UAE's banking sector saw profits increase by 24 percent in 2011 - its best performance since 2005.
Leichtfuss said: "Strong profits were witnessed by the UAE banking sector in 2011 despite an increase loan loss provisions.
"Compared to 2010, the profitability of corporate banking increased by 13 percent in 2011, while revenues grew by seven percent. Retail banking profits saw a more modest gain of five percent, while retail revenues actually declined by two percent."
Although the 2011 upturn has been quite strong for banks in Saudi Arabia and across the GCC, returning to pre-crisis levels of growth in the foreseeable future is unlikely, the BCG study said.
"This is even more so given that the region's regulatory bodies are becoming more cautious with regards to lending and fee policies of banks. Therefore, the challenge of improving competitiveness in an environment of slower growth remains," it added.