Growth, innovation and challenges in UAE banking

The United Arab Emirates (UAE) has enjoyed consistent economic growth for the past six years. Annual increases in gross domestic product have averaged 4.4 percent since 2010, peaking at 7.2 percent in 2012.

For the banking industry, the strong performance of the country’s economy – despite challenges such as falling oil prices – has opened up many opportunities for growth and revenue generation.

So what are the latest developments in the sector, and what challenges and prospects could lie ahead?

Growth and innovation

While they have faced macroeconomic headwinds, UAE banks have managed to achieve something that many of their counterparts in other countries are striving for: customer satisfaction.

The latest Trust Index from the UAE Banks Federation (UBF), published in December 2016, revealed that nearly three-quarters (72 percent) of respondents to a survey described their view of banks as “very positive”, up from 70 percent in 2015. The number of customers who said their impression of banks had improved in the past six months was three times higher than the number who took a dimmer view of the industry.

H.E. Abdul Aziz Al Ghurair, chairman of the UBF, said: “Despite economic uncertainties, this year’s Trust Index indicates that perception about the UAE’s banking sector is healthy and steady.”

He added: “Preparing the industry for future trends is a priority of the UAE Banks Federation, and we are also happy to see the industry making a positive impact in the digital space.”

One bank that has been making its mark in the digital environment is Emirates NBD, which recently announced some significant upgrades to its ‘mePay’ service. Customers can now use Emirates NBD ATMs or the provider’s mobile banking app to transfer money to anyone in the UAE. The recipient doesn’t need to be an Emirates NBD customer or even have a bank account, just a mobile phone. They will receive a message with a one-time PIN that will allow them to withdraw the stated amount from the closest Emirates NBD ATM.

Suvo Sarkar, group head of retail banking and wealth management at the bank, said: “By optimizing our digital banking services across ATM and mobile, we are enabling customers to withdraw cash or send cash remotely in an instant to those who might not necessarily have a bank account or their cards accessible to them.”

Future challenges?

There will inevitably be some big challenges for the UAE banking industry to overcome as it seeks to achieve further growth in 2017, one of which will be ongoing uncertainty around the national economy. The UAE is currently working to diversify its economy to ensure sustainability in what is being called the ‘post-oil era’. Oil prices have been on a steady downward trend for more than two years, plunging from over $103 for a barrel of crude oil in March 2014 to just $29 in January 2016. Prices recovered to nearly $51 by the end of 2016.

As big a problem as this poses for a country whose wealth is rooted in the oil industry, there is optimism in the banking industry about how the economy will perform in 2017.

HSBC UAE chief executive Abdul Fattah Sharaf told Gulf News the bank was “broadly comfortable” with the economic outlook and expected the country to deliver “the best performance of the Middle East’s oil-producing states”.

Like their counterparts in many other emerging and developed economies all over the world, UAE banks face the task of navigating an increasingly complex regulatory and compliance environment. This was one of the issues explored at a recent meeting of the UBF board of directors, who focused specifically on how the implementation of International Financial Reporting Standards 9 (IFRS 9) could impact the banking sector.

Scheduled to come into force for annual reporting periods from January 1st 2018, IFRS 9 will place additional disclosure and risk management requirements on banks. It’s a significant change that financial institutions around the world must prepare for.

Written by Andy Brown

Andy Brown

Andy is marketing director for payments at NCR. He has nearly 30 years' experience in e-payment systems from the delivery and support of systems in the Far East and Europe, from both the product management and marketing perspectives. Based in the UK, Andy is responsible for marketing NCR payment solutions.

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