What has been the impact so far of the remarkable developments in the global financial sector – including digitalisation, growing role of AI, robotics, and blockchain technology – on the banking sector in the UAE?
As the UAE has very advanced digital technology infrastructure, it is able to seamlessly cater to the digital shift in consumer preferences. As a result, technology has been a major driver of the rapid transformation of the UAE’s banking sector. The adoption of digitalisation in particular has had a largely positive affect on several areas of banking, customer service being among the most impacted.
Trends like automation, new payment systems and branchless banking have hugely changed the way customers bank. This has led to structural re-organisation within banks, with fewer brick and mortar outlets, and employees being re-trained and re-deployed. Ultimately, there is an improved and more efficient customer experience.
Looking at the dramatic evolution of the banking sector in the country over the past two decades, do you see continued transformation in the 2020s and 2030s in the burgeoning banking sector in the UAE?
The emergence of new technology shows no signs of slowing. So, UAE banking sector’s transformation will inevitably continue. In the last decade, the sector has witnessed an abundance of benefits as a result of major digital developments, such as online banking and more recently blockchain. This has further fuelled the appetite of banks to maintain and foster the momentum of the technology revolution.
What are the key challenges confronting the sector, both globally and in the UAE?
In spite of volatility across markets and regional challenges, the UAE banking sector remained healthy and continued to grow, although modestly. The UAE’s banking sector remains the largest in the Arab world in terms of assets. It maintained steady asset growth, improved profitability and asset quality in 2018, and is expected to deliver similar performance in 2019.
Constant technological advancements are disrupting banking ecosystems worldwide, creating new and challenging paths for economic and financial development. The banking sector is increasingly investing in new technologies, as digital maturity for banks has become necessary to thrive in evolving markets. However, this means that banks are more prone to cyberattacks, and they therefore have to strengthen their cybersecurity operations, which comes at an increased operational cost.
These technological changes are accompanied by shifts in the regulatory framework, which require banks to improve compliance and transparency of operations. Within banks, innovative technologies like automation and AI are producing a need for organisational restructuring, and banks are experiencing some redundancies. However, banks are demonstrating their commitment to overcome these challenges, embracing solutions such as M&As in order to create valuable opportunities to boost profitability, improve operational synergies, and lower funding costs.
Customers’ needs and expectations are changing, and banks are facing increased pressure meeting them. For instance, customers now expect faster and easier banking services driven by digital innovation. This shift in expectations is producing a challenge for banks to strike a balance between offering convenient services and ensuring secure banking operations.
Could you tell us about the growing demand for credit in the SME sector and how banks in the country are responding to SME needs?
There is an understandable reluctance from banks to offer funding to SMEs because there is a high risk of loan defaults. Some regulations put pressures on banks, thus limiting banks’ desire to lend. This has led many start-ups and SMEs to search for capital elsewhere.
However, this trend has been changing over the past few years, with banks significantly increasing their investments to provide new stimulus to the SME sector. For example, we are seeing the launch of an increased number of initiatives such as Emirates Development Bank’s new Credit Guarantee Scheme, which provides a starting amount of Dh100 million in support for SME funding.
But the needs of SMEs go far beyond financing. They require guidance, training, and education. Increasingly, banks are now re-aligning themselves to these needs. They are holding seminars and workshops for SMEs, to address key challenges together and open constructive dialogues.
Last year, UAE Banks Federation (UBF) released a financial literacy handbook for SMEs which is aimed at boosting financial awareness of SMEs in the UAE. The handbook provides information about governance, financial management, access to finance and borrowing, and debt management, as well as other areas of business finance.
How is the banking industry keeping pace with new technologies, especially blockchain, which is being adopted for KYC in the UAE?
The UAE has very advanced digital technology infrastructure, and is well-equipped to keep pace with the rapid emergence of new technologies. We are fortunate to have forward-thinking leaders who recognise the benefits these technologies bring to the table. In April 2018, the UAE Government launched the Emirates Blockchain Strategy 2021, which aims at capitalising on blockchain technology to transform 50 per cent of government transactions in blockchain platforms by 2021.
UAE banks are taking cues from this initiative, and are rapidly adopting new cutting-edge technologies to enhance the customer experience and improve operational efficiencies. UBF is a huge advocate of this digital disruption, and is taking an active role in ensuring that such change takes place across the whole banking sector.
To ensure that banks stay ahead of the curve when it comes to technology, UBF holds workshops, seminars, and meetings, for member banks to exchange knowledge and expertise, and identify new trends and best practices. Most recently, we proposed the adoption of blockchain to enhance KYC (Know-your-customer) processes across different participating banks.
The government has recently introduced several new laws including the UAE Public Debt law, Netting law, Anti-Money Laundering law, and others. How will these measures boost the banking sector, in particular, and the UAE economy, in general?
Specifically, the Public Debt Law will have a huge impact on the banking sector when it comes into effect, helping boost banking liquidity by allowing the Federal Government to issue sovereign debt for the first time. It will also improve the competitiveness of the economy, creating further opportunities for investors while bringing significant returns to the country.
The Anti-Money Laundering Law is also a significant development, underpinning the UAE’s commitment to combat terrorism and other serious illicit crimes. It is welcomed by the banking sector and will give greater confidence to investors, both domestically and internationally.
The introduction of these laws is a positive statement that demonstrates the nation’s intent. They are huge steps forward that will protect consumers, strengthen regulatory and governance frameworks, combat financial crime, and ultimately improve the UAE economy.
What were the factors that ensured steady growth in the UAE banking industry and have resulted in cementing its position as the largest banking sector in the Arab world, despite the volatility seen across the globe in the banking industry?
2018 has yielded strong financial results and profit growth, despite volatility across regional and global markets. The UAE is strategically positioned and remains an attractive choice for investors and professional experts. This synergy between international, regional and local talent, and their exchange of ideas and experiences, have undoubtedly contributed to the banking sector’s success.
The strategic position of the UAE also contributes to its position as one of the leading markets that fuel the growth of the Islamic Finance industry, especially that the local banking sector includes a significant number of Islamic banks as well as banks that provide Shariah-compliant services. This has undoubtedly strengthened the UAE banking sector as a whole, as Islamic Finance remains an attractive choice for UAE customers.
Our banking sector is an emerging market, and its flexibility and agility have proved to be key to its success. In light of fluctuating oil prices that caused an uncertain economic backdrop, banks were embracing solutions that have proved successful in the past, such as mergers and acquisitions, in order to improve economies of scale and increase revenues.
What are the factors that have resulted in the success of the UBF’s “Tasharuk” platform that helps banks with the requisite tools in combatting cyber attacks?
Cyber intrusions and threats are the harmful results of the integration of technology advancements in the banking sector. This has powered UBF’s launch of the Information Sharing and Analysis Centre (ISAC) Tasharuk in September 2017 to help banks collectively fight cybercrime. Tasharuk has enabled participating banks to adopt anti-cybercrime efforts, identify threats and enhance defence systems. Specifically, the platform equips banks with the relevant and innovative tools and intelligence to detect and fight cyberattacks.
Tasharuk’s collaborative and systematic approach provides banks with a platform to share information related to cyber threat intelligence, as well as report observed incidents to help their counterparts fight attacks.
In our continuous efforts to mitigate the negative implications of technology in the banking sector, we not only plan on increasing the number of banks registered with Tasharuk, but are also aiming at expand the platform to include institutions across the financial service sector, including insurance companies and exchange houses.