Complex Made Simple

UAE banking industry: changes, challenges and disruptors

The UAE banking sector has coped with a lot, from new market entrants and innovations to payment disruptions, geopolitical tension, and economic shifts.

The banking sector is expected to grow at 6.5 percent in 2019 The UAE banking sector faces a slew of challenges including cybercrime The UAE banking sector is also likely to see disruptors such as small, digital banks with niche markets

The transaction banking industry is undergoing considerable transformation and is thriving through change.

From coping with a slew of new market entrants, innovation and an emerging generation of human capital to payment disruptions, geopolitical turbulence and economic shifts, the banking industry in the UAE has pulled through a lot with its head held high. All this and more was discussed at the BAFT MENA Bank to Bank forum, specifically in the fireside chat between Tod Burwell, President and CEO, BAFT and Abdul Aziz Al Ghurair, CEO of Mashreq Group.

"The UAE GDP is projected to grow at 3.5 percent and the banking sector is expected to grow at 6.5 percent in 2019. This is a decent growth rate compared to countries in other parts of the world. The UAE also boasts decent capital adequacy, with the average standing at 18 percent, which will help us to grow," said Abdul Aziz Al Ghurair, CEO of Mashreq Bank.


Overcoming challenges to growth

The UAE banking sector has sufficient liquidity and is ready for good growth in 2019. This means that the UAE needs its economy to keep growing to facilitate the growth of the banking sector. Although the economy has faced challenges over the past few years, it has weathered the storm and has kept moving toward its credible, mature growth targets.

The coming months will bring their share of challenges. The transactional banking sector is keeping a keen eye on real estate, for instance. If the rates fluctuate beyond a point that the consumer can bear the burden, banks will have to ease that burden on the consumer by taking proactive measures such as increasing the term of loan repayment.

"The UAE DNA is made of seven Emirates. We love competition in each Emirate. This is one of the key areas that have fueled growth – not only competition with the region, but also competition within the region. The interest in the business community was built around that. The time has, now, come to consolidate. We are yet to see a condition wherein free shareholders see the benefit in consolidation. We see businesses that are Dubai-based, Abu Dhabi-based, RAK-based and so on. We are yet to see inter-Emirate consolidation," Abdul Aziz Al Ghurair said.



The banking sector also faces the challenge of compliance. It is not sufficient to be compliant merely with UAE regulators; it is equally important to be compliant with international regulators and the individual regulators in countries across the globe. Any transaction could have touch points in various countries. With compliance regulations changing every so often, followed by the need to implement these changes and modify technology and AML programs based on these changes, it is becoming a challenge to stay abreast with the compliance requirements across the globe.

"Cybercrime is also a major concern. The remittance limits are also growing. Transactions go into 50 million or 100 million dollars. So we need to be extremely careful on cybersecurity and we must enhance it. This is a major threat facing us," Abdul Aziz Al Ghurair added.


Major disruptors

The UAE is also likely to see major disruptors in the banking sector – small, digital banks who focus on niche markets and start grabbing market share from larger banks. This is especially important given the UAE's high adoption rate of mobile phones and digital banking in the retail sector. The adaptation of digital strategies has been slower in the corporate than in retail, but the success of retail is driving the digital adaptation in corporate banking as well.

The future of the banking sector will see straight-through digital processing of most transactions, with manual inclusion only where necessary to meet compliance requirements. This means that transactions such as remittances can be completely tracked hour-by-hour digitally without the need for call centers or other such human intervention. This could also mean the closure of bank branches, as workflows become digital. This means that there will always be a high necessity to retrain, redeploy the existing workforce while recruiting at least one-third of the new workforce with tech-trade expertise. This will mean ensuring that employees have better tools and investing in replacing legacy systems.

The UAE banking sector will also need to take positive strides toward artificial intelligence, cognitive computing, and blockchain technology.

On another note, the banking sector also faces the threat that arrives from the work culture created by big tech companies. The work culture in tech giants is quite liberating compared to the more rigid work structures imposed on employees within the banking sector.



Geopolitical trade tensions

The U.S.-China trade fallout has rocked the equilibrium that the world enjoyed over the past few years. However, the UAE is fortunate inasmuch as it is likely to benefit from whatever the outcome of this "trade war" is likely to have.

If China shifts its focus from the U.S. to alternative markets, whether Asia or Africa, the UAE is in a good position to facilitate Chinese expansion into Africa or Central Asia. The UAE has great ports, excellent infrastructure, air connectivity as well as immense growth potential in innovation and technology.