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Expansion is the name of the game for regional banks in the GCC. They are increasing headcount and salaries so rapidly it’s even affecting their bottom line.

The latest round of quarterly reporting makes for interesting reading, and not just because of the often double-digit increases in profits. In most cases, they are spending around twice as much on staff as they were this time last year.

Shuaa Capital’s Q2 profits fell by 10% on 2007, a slip which the bank pins on its recent aggressive expansion. In the past few months it has increased headcount from 257 to 498, through a mixture of hiring and acquiring new businesses. It also hiked up performance-related bonuses.

Oliver Schutzmann, head of investor relations at the bank, is unconcerned by the results and says the GCC remains a “sweet spot”. He adds: “Investors are looking to the GCC. They need someone who has a long track record and we have that.”

Another major Middle Eastern player, EFG Hermes, says that employee expenses increased by a massive 188% on the same period last year and now account for 69.5% of operating costs.

The bank says this is down to an increase in staff pay, which it says was necessary to “enable the group to retain Arabic-speaking quality staff as the bulge brackets began setting up in the region”. However, it has yet to bring its salaries completely into line with its international competitors.

Meanwhile, Bahraini investment bank Gulf Finance House nearly doubled the amount it spent on staff in Q2 2007, from $40.9m to $75.8m.

The firm, which last year listed on the London Stock Exchange, says the higher international profile has worked to its advantage.

“We have seen a marked increase in interest from higher quality managers wishing to make their careers at GFH,” says Esam Janahi, the bank's chairman.

A recent survey by Hewitt Associates says that the average GCC bank spends around 60% of its operating costs on staff pay.

The average investment banker in Dubai can earn a base of $62.2k at analyst level, $114.2k as an associate, $179.5k as a vice president, and director roles pay $269.2k and MDs take home $342.7 before bonus, according to recruiters the Charterhouse Partnership.