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OCTOBER 2017 | ISSUE 199
What the customer wants
Dr. Bernd van Linder, CEO, Commercial Bank of Dubai
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com
Dubai Technology and Media Free Zone Authority
“The most visible aspect of new technology is on the front end but the biggest impact is on the back-end.”
INSIDE:
14 FACILITATING
INDUSTRY PROGRESS
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30 RISING ABOVE 60 ANTICIPATING BUDDING 70 DATA ANALYTICS TO ENHANCE CUSTOMER
ADVERSITY
HEADWINDS
EXPERIENCE IN FINANCIAL SERVICES
22/10/2017 13:26
THE JOURNEY TO SIMPLICITY 50 years ago, we started with a single thread of hope. Even though there were knots and tangles along the way, we persisted until we overcame the complexities to offer simpler banking solutions today. ABK... moving forward over 50 years.
Simpler Banking
contents
OCTOBER 2017 | ISSUE 199
T
hings have begun to get more exciting this year. Financial institutions have shifted their focus to achieving the targets and mandates that were set at the beginning of the year. Much of these are initiatives driven by digital-centric goals. The banking industry is no longer steered by the financial institutions themselves; it is now an industry that is very much dependent on customer engagement and satisfaction. In order to survive, a financial institution needs to put customer wants and expectations at the crux of their development strategies. A bank that fails to stay relevant in today’s economy is one that will face extinction.
22
3
E D I TO R ’ S L E T T E R economy, investment flows from the Gulf into Africa, developments in transaction banking as well as the potential hurdles GCC economies may face going into 2018. Covering the breadth of regional concerns in the financial services industry, as usual, I wish you a fruitful read and prosperous fourth quarter.
Reflecting this trend, our issue this month concentrates on the innovation and digitisation theme. Ensuring that the industry is aware of the regulatory developments in the region as well as the legislative parameters surrounding fraudulent activities in banking, our legal pieces shed light on these relevant guidelines. In the same breath, our cover star this month, Commercial Bank of Dubai, stresses the obvious importance of giving the customer what they want. The digitisation theme carries on with exclusive articles from industry frontrunners in this area—Temenos, Maveric Systems, Misys and KPMG. Apart from these, this issue also features an insight into the Jordanian
10
Nabilah Annuar Nabilah Annuar Editor
BankerMENA CPI Financial
30
40
6 News analysis
COVER INTERVIEW
8 News bites
COUNTRY SPOTLIGHT
22 What the customer wants
UAE financials—maintaining stead
30 Rising above adversity
THE MARKETS
10 Examining VAT
DIGITISATION
LEGAL PERSPECTIVE
realise the $227 billion digital opportunity? 40 Enabling financial inclusion
36 Will Islamic banks or fintechs
14 Facilitating industry progress 18 E-banking regulations against fraud threats in the Middle East
www.bankerme.com OCTOBER 2017
JULY – AUGUST
om
| ISSUE 199
2017 | ISSUE 197
www.bankerme.c
Growth amidst Saud Ghouth, uncertainty Ahmed
“The most visible of new technolog aspect front end but the y is on the impact is on the biggest back-end.”
Chief Executive Officer of Alkhabeer
INSIDE:
10 CREATING A
WIN-WIN STATE
24 TURKEY: REALITY
IS BETTER
THAN PERCEPTION
30 INVESTING IN
SAUDI’S
CONSUMER STAPLES
, CEO, Commer cial Bank of Dubai
REALISING
THE POTENTIAL
INSIDE:
14 FACILITATING
Zone Authority
Dubai Technology
42 RENEWABLES:
What the customer wants
Dr. Bernd van Linder
Get the next issue Banker MiddleofEast before it is published. Full details at: www.bankerme.c om
and Media Free
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com
Chief Executive
Dubai Technology
Ghouth, Ahmed SaudOfficer of Alkhabeer Capital
and Media Free
t Growth amids uncertainty
Zone Authority
Capital
Get the next issue of Banker Middle East before it is published. Full details at: www.bankerme.com • Follow us on Twitter: @bankermena
“Alkhabeer’s successful private equity strategy in focuses on investing defensive sectors.”
INDUSTRY PROGRESS 30 RISING ABOVE 60 ANTICIPATING ADVERSITY HEADWINDS BUDDING 70 DATA ANALYTICS EXPERIENCE IN TO ENHANCE CUSTOMER FINANCIAL SERVICES
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contents
4
OCTOBER 2017 | ISSUE 199
42
www.bankerme.com Chairman SALEH AL AKRABI Chief Executive Officer TONY LONG tony.long@cpifinancial.net Tel: +971 4 391 4681
Managing Editor GEORGINA ENZER georgina@cpifinancial.net Tel: +971 4 391 3728
Sales Director OMER HUSSAIN omer@cpifinancial.net Tel: +971 4 391 5419
46
INVESTMENTS
42 Untapped opportunities in Africa 46 Reinventing the wheel TRANSACTION BANKING
50 The way forward IN DEPTH
56 Islamic investing 60 Anticipating budding headwinds
60
TECHNOLOGY
64 The age of extreme automation 66 AI in financial services: the next frontier 70 Data analytics to enhance customer experience in financial services
PERSONALITY
74
74 Asim Bukhtiar, Head of Research & Advisory, Saudi Fransi Capital
Caring for your career
Looking for a new position in financial services in the Middle East?
Checkt CPI Financial’s Jobs page
ou
www.cpifinancial.net/jobs
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SHIFT TO SHIFT TO A BETTER FUTURE A BETTER FUTURE 800 124 2525 800 124 2525 Alawwal Bank hereby confirms that the change in its name from Saudi Hollandi Bank to Alawwal Bank was only confined to the trade name/logo Alawwal Bank hereby confirms that the change in its name from Saudi Hollandi Bank to Alawwal Bank was only confined to the trade name/logo
6
news
analysis
UAE financials— maintaining stead Economic resilience and solid bank financial fundamentals underpin the country’s health
I
n a recent commentary, Moody’s has retained its stable outlook for the UAE’s banking system. The encouraging outlook reflects the resilient economic conditions in the country and the solid capital and profitability of banks in the country as well as adequate liquidity and very high support from the UAE Government (rated Aa2 stable by Moody’s). ECONOMIC GROWTH WILL REBOUND The research and ratings agency expects improving non-oil economic activity to increase real GDP growth to 3.2 per cent in 2018, following a forecast slowdown to 1.1 per cent in 2017 from three per cent in 2016. This recovery will reflect government spending in Dubai and increasing activity in trade and financial services. In turn, this is forecasted to result in an increase in credit growth to around five per cent in 2018, after a forecast decline to two per cent in 2017, from 5.8 per cent in 2016 and eight per cent in 2015. LOAN PERFORMANCE WILL SOFTEN MODESTLY Following sluggish economic growth in 2017, problematic loans will edge higher, reaching 5.5 to six per cent of gross loans by 2018, from
5.3 per cent in June 2017. High concentrations to governmentrelated institutions and to a volatile real estate sector pose downside risks to loan quality. STRONG CAPITAL PROVIDES AMPLE BUFFERS Moody’s expect resilient profitability and subdued asset growth to support system-wide tangible common equity (TCE) at 14 to 15 per cent of risk weighted assets over the next 12 to 18 months (14.2 per cent at June 2017). Even under their low probability ‘stress’ scenario, Moody’s expect the system’s TCE ratio to remain at a solid 10.2 per cent.
FUNDING AND LIQUIDITY CONDITIONS WILL REMAIN STABLE Stabilising oil prices and international bond issuances will continue to support funding and liquidity, following a tightening during 2016 amid oil price weakness. UAE banks will remain primarily deposit funded, with some recourse to more volatile market funding. PROFITABILITY WILL REMAIN STRONG Moody’s suggests that thinner margins would be balanced by lower operating expenses and stabilising provisioning charges. Pressure on interest margins will reflect higher funding costs, as rising US interest rates translate into higher local currency rates through the currency peg of the UAE dirham with the US dollar. GOVERNMENT SUPPORT WILL REMAIN HIGH The UAE Government’s willingness and capacity to support local banks if needed will remain very high over the next 12 to 18 months. This was reflected by Moody’s affirmation and outlook change to stable on the Government’s credit rating in May 2017.
Overview of key drivers for UAE’s stable banking system outlook Operating environment
Asset risk
Stable
+ Non-oil activity will support growth in the UAE economy, reflecting government spending in Dubai, combined with increasing economic activity in trade and financial services + Construction of major infrastructure projects in Dubai in preparation for the 2020 World Expo will also support economic growth in 2017 = In the hydrocarbon economy, the cap on oil production volumes - in line with the Oil Petroleum Exporting Countries (OPEC) crude oil production cut agreement - will limit growth
Deteriorating -
Loan performance will soften modestly = Corporate loan performance will be resilient, while retail as well as small and medium size delinquencies increase = High credit concentrations to real estate sector and large government related entities pose a downside risk to loan quality = Strengthening regulatory framework and underwriting practices will improve financial stability
Capital
Stable
-
Funding and liquidity
Stable
= Stabilising oil prices will continue to support funding and liquidity conditions = UAE banks will remain primarily deposit funded, with moderate recourse to more volatile market funding
Profitability and efficiency
Stable
- Higher funding costs will marginally strain net interest income + Operating expenses will decline and provisioning charges will stabilise somewhat
Government support
Stable
= Continued strong capacity and willingness of the government to support banks in case of need
Strong capitalisation provides ample buffers, supported by resilient capital generation and subdued asset growth + Basel III implementation is in progress
Source: Moody’s
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CBB issues landmark regulations on Shari’ah governance In an attempt to establish industry-leading Shari’ah governance principles and practises in Bahrain, the Central Bank of Bahrain (CBB) has released a new Shari’ah Governance (SG) module. Issued after extensive consultation with the industry and CBB’s Centralised Shari’ah Supervisory Board (CSSB), the landmark module is likely to result in a paradigm shift in improving the Shari’ah compliance and governance standards among Islamic banks in Bahrain and shall set proper benchmarks for global Shari’ah governance practises. It is expected to serve as an example for the region and the global Islamic banking market. The new regulations will be applicable from 30 June 2018 on all Islamic retail and wholesale banks in Bahrain. For the first time an Independent External Shari’ah Compliance Audit (IESCA) has been made mandatory. The first IESCA report is to be issued in 2020 based on the transactions, structures and activities of 2019. It marks a significant new step in independent confirmation of whether Shari’ah governance is embedded in the day to day functioning of an Islamic bank. The following are some of the most important provisions of the SG module: • The Shari’ah governance structure of an Islamic bank must consist of four important components or elements—the Shari’ah Supervisory Board (SSB), Shari’ah Coordination and Implementation function, Internal Shari’ah Audit function and External Independent Shari’ah Compliance Audit. • The module discusses the authority vested in the SSB and ensures their independence through various measures. It also discusses their eligibility criteria, roles and responsibilities and calls for more interaction with the board of directors. • SSB’s rulings of standard products and the jurisprudential or other bases of such rulings must be made available for the customers and the general public by publishing it online and in the annual report. • The module requires both Shari’ah Coordination and Implementation function and Internal Shari’ah Audit function to independently report to the SSB.
Middle East GDP to grow 2.4 per cent in 2018 The outlook in the Middle East region is expected to remain tough, with several further squeezes on household income in 2018. However, overall GDP is expected to grow by 2.4 per cent next year and rising to four per cent in 2019, according to ICAEW’s latest report. Any extension of OPEC’s production cut deal, which ends on 31 March 2018 would delay the recovery. One of the key challenges for the Middle East economies as we move into the final months of 2017 and into 2018 is the ongoing squeeze on household incomes. The upcoming GCC value-added tax is expected to increase the cost of living in impacted economies by around 2.5 per cent in 2018, and 0.5 per cent in each year from 2019 to 2022. Together with the impact of a weaker dollar on import costs, these pressures are expected to drive consumer price inflation at the GCC level from just 1.2 per cent in 2017 to 4.7 per cent in 2018, and 3.5 per cent in 2019. Consumer spending is also expected to grow 2.5 per cent in 2018 and 2019—compared to an average of 4.2 per cent per annum from 2010 to 2016.
Saudi Arabia prices second international bond The Saudi Ministry of Finance has announced the successful pricing of a second issuance under the Kingdom of Saudi Arabia’s Global Medium-Term Note Programme. According to the Saudi Press Agency, the total amount of the second issuance has been sized at $12.5 billion, equivalent to SAR 46.9 billion, consisting of three tranches of notes as follows: $3 billion (equivalent to SAR 11.3 billion) Notes maturing 2023, $5 billion (equivalent to SAR 18.8 billion) Notes maturing 2028, and $4.5 billion (equivalent to SAR 16.9 billion) notes maturing 2047. The issuance received significant interest from international and local investors, with the order book peaking at $40 billion (equivalent to SAR 150 billion). The issuance is expected to settle on or about 4 October 2017.
Oman still faces fiscal risks despite spending reduction Oman’s budget outturns for the first seven months of 2017 highlight persistent risks to the sovereign’s fiscal consolidation plans as government spending cuts fall short of targets, said Fitch Ratings in a recent commentary. Recent data show a six per cent decline in total government spending in the first seven months of 2017 compared with a year earlier, with a year-on-year decline of 26 per cent in July alone. The government has budgeted a reduction of nine per cent for the full year. Current spending, including subsidies, fell two per cent, against a planned cut of seven per cent. Capital spending fell by four per cent, against a planned reduction of nine per cent. Fiscal deterioration was a key driver of Fitch’s revision of the outlook on Oman’s ‘BBB’ rating to Negative in June.
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news
bites
9
RATINGS REVIEW ENTITY
RATING F1 AAAA AAF1+
Affirmed Downgrade Downgrade Downgrade Affirmed
28 Aug 2017 28 Aug 2017 28 Aug 2017 28 Aug 2017 28 Aug 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Abu Dhabi
F1+ AA AA+ AA F1+
Affirmed Affirmed Affirmed Affirmed Affirmed
23 Jan 2017 23 Jan 2017 21 Aug 2017 23 Jan 2017 23 Jan 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
United Arab Emirates
Ras Al Khaimah
F1+ A AA+ A F1
Affirmed Affirmed Affirmed Affirmed Affirmed
21 Aug 2017 21 Aug 2017 21 Aug 2017 21 Aug 2017 21 Aug 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
United Arab Emirates
Oman
F2 BBB ABBB F2
Affirmed Affirmed Affirmed Affirmed Affirmed
19 Jun 2017 19 Jun 2017 19 Jun 2017 19 Jun 2017 19 Jun 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Oman
Saudi Arabia
F1+ A+ AA A+ F1+
Affirmed Downgrade Downgrade Downgrade Affirmed
22 Mar 2017 22 Mar 2017 22 Mar 2017 22 Mar 2017 22 Mar 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Saudi Arabia
Kuwait
F1+ AA AA+ AA F1+
Affirmed Affirmed Affirmed Affirmed Affirmed
09 Nov 2016 09 Nov 2016 09 Nov 2016 09 Nov 2016 09 Nov 2016
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Kuwait
Lebanon
B BBB B
Affirmed Affirmed Affirmed Affirmed Affirmed
01 Sep 2017 01 Sep 2017 01 Sep 2017 01 Sep 2017 01 Sep 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Lebanon
Turkey
B BB+ BBBBBBF3
Affirmed Affirmed Affirmed Affirmed Affirmed
21 Jul 2017 21 Jul 2017 21 Jul 2017 21 Jul 2017 21 Jul 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Turkey
Egypt
B B B B B
Affirmed Affirmed Affirmed Affirmed Affirmed
22 Jun 2017 22 Jun 2017 22 Jun 2017 22 Jun 2017 22 Jun 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Egypt
Bahrain
B BB+ BBB+ BB+ B
Affirmed Affirmed Affirmed Affirmed Affirmed
12 Jun 2017 12 Jun 2017 12 Jun 2017 12 Jun 2017 12 Jun 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling Local Currency Long Term Issuer Default Rating Local Currency Short Term Issuer Default Rating
Bahrain
Iraq
B BB-
Affirmed Affirmed Affirmed
13 Mar 2017 13 Mar 2017 13 Mar 2017
Short Term Issuer Default Rating Long Term Issuer Default Rating Country Ceiling
Iraq
Qatar
COUNTRY Qatar
KEY Positive Negative Evolving Stable
OUTLOOK
WATCH
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the
markets
10
It will be important for businesses to distinguish between what is taxable, exempt, and zero rated. (PHOTO CREDIT: SHUTTERSTOCK/RATTANA R)
Examining VAT Vijay Soni, President of Institute of Management Accountants’ Saudi Arabia Chapter speaks exclusively to Banker Middle East on the impact of VAT on financial institutions in the region
H
ow will VAT affect financial transactions in the Gulf?
Businesses will have to plan their operating aspects specifically for those who have outsourced most or some of the works to either external companies or branches/liaison offices in other countries. VAT is leviable for most transactions, except those specifically exempted, whether with or without consideration, therefore VAT would be levied for all these types of transactions and would entail an increase in costs for the businesses. Even a warehouse service of the same company situated in another state will attract VAT compliances.
Matching input credit to taxable and exempt supplies, dealing with fully compliant supply chain members, adopting new accounting and compliance processes to the transactions need proper professional advice and adoption at an early stage. Cross-border transactions within GCC and outside GCC, reverse charge mechanism, delayed payment of VAT by the supplier, differing refund rules across GCC states, etc. are critical aspects that may block business cashflow and require a greater compliance process. It will be tricky to route if the additional VAT cost is to be passed on to the customers or it has to be compensated with reduced margins and operational reengineering as retaining market share will be the main focus for any business.
How will this impact profit and loss of the financial institutions?
Vijay Soni
Fee-based financial services are expected to be taxed, but marginbased products are likely to be exempted. The domain is left to the discretion of each GCC member state to formulate its rules, meaning different cost structure will prevail
cont. on page 12
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among the member state businesses. Input credit for exempted supplies are not allowed generally, but in the case of exempted financial services, each state will decide how much percentage of the input may be allowed as a credit to the business. The Unified Agreement for ValueAdded Tax in the GCC also states that it may apply any other tax treatment rate on financial services. This will greatly impact region-wise recovery, and the cost of doing business for the financial institutions will vary per discretion being applied by each state. Furthermore, financial institutions and other business units will have to create accounting ledgers viz. a. VAT payable at five per cent; b. VAT receivable at five per cent c. VAT Payable—RCM at five per cent, etc. These entries should be appropriately grouped under: “duties and taxes” or “current assets”, “current liability” in Books of Accounts so that they can be appropriately accounted. Also, financial institutions are required to separate out the taxable as well as non-taxable transactions in their books of accounts. It is important to mention that the VAT Law has penal provisions as well, therefore the wrong availment of credit or short deposits might significantly increase cost for the businesses and ratings.
What challenges are financial institutions currently facing in preparing for the implementation of VAT in GCC? Financial institutions should pay attention to the following challenges and address them as early as possible: a. Segregation of margin/taxable and non-margin/non-taxable based; transactions in books of accounts b. Creation of proper accounting codes/ ledgers and their adjustments;
Fee-based financial services are expected to be taxed, but margin-based products are likely to be exempted. The domain is left to the discretion of each GCC member state to formulate its rules, meaning different cost structure will prevail among the member state businesses. – Vijay Soni, President, Institute of Management Accountants, Saudi Arabia Chapter – c. Supplier selection to transact— whether VAT payable under reverse charge or forward charge; d. Dealing with differing input credit and differing possible tax for cross border financial services as each state may have its own financial services exemption and tax credit rules. Business units need to start early while identifying VAT touch points, analysing customer and supplier nature and contracts, learn the law including the seven pillars of tax planning, educate and bring all relevant stake holders on board, and lastly, update their customer/supplier data base. The introduction of the VAT is not simply a new tax; rather it is a critical reform leading to a new way of handling businesses. The journey will be smooth and rewarding for those who start early and invest in incorporating the regulation with modified business processes.
How will the financial and economic landscape look like following the implementation of VAT in the GCC? The success and failure of VAT would depend much upon the private sector. How quickly and efficiently they will adopt VAT, in terms of the preparations they have made or are planning to make, the type of skill sets employed, type of consultants hired, and last but not the least, establishing an understanding across the organisation of the implementing rules and regulations framed by the government. The recent GST implementation experience from India can be a good learning tool as well.
What is your outlook /projection on the development of economies in GCC following VAT? Since the Gulf business community has been least exposed to such taxes, VAT might create a few hiccups in the short run. With combined efforts at multilateral levels, in a couple of years, there is no mistaking that VAT will help in the economic growth of the GCC countries along with international recognition for the GCC, as far as business transparency and taxes are concerned. The introduction of VAT is a positive change for this region as it will create a new source of stable revenue for governments with the least negative impact on regional economies, bring economies to scale, transparent and cohesive movement of financial information within the GCC. These new tax reforms will support the region’s governments with economic diversification away from crude oil and encourage foreign investment to the region, actively reducing reliance on a commoditycentric model at a time of significant market volatility.
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14
legal
perspective
Facilitating industry progress Regulations are essential to developing the banking landscape. (PHOTO CREDIT: SHUTTERSTOCK/CORGARASHU)
Clint Dempsey, Partner, Head of Banking & Finance, and Gareth Lond, Associate, Banking & Finance, both from Eversheds Sutherland UAE, provide a succinct overview of trends and regulatory developments in the region
T
here have been several legal developments in the banking and finance sector in the region recently. Both a new bankruptcy law and a new moveable pledge law in the UAE are examples of progressive legal changes that are likely to increase confidence amongst financial institutions by harmonising existing laws with international best practises. Furthermore, regional bank consolidations, such as the merger of The National Bank of Abu Dhabi and FGB, offer the prospect of international
growth and increased competitiveness in increasingly challenging global market conditions. BANKRUPTCY LAW UAE Federal Law No. 9 of 2016 on Bankruptcy (new Bankruptcy Law) was published on 29 September 2016 and came into force on 20 December 2016. It repealed the bankruptcy provisions in Chapter 5 of the Commercial Code (previous Bankruptcy Law). It applies to; (i) all entities governed by the Commercial Companies Law;
(ii) free zone companies (excluding those incorporated in the Dubai International Financial Centre and the Abu Dhabi Global Market); and (iii) decree-incorporated companies who have ‘opted in’ through their articles of association. The test for insolvency has been expanded from that applied under the previous Bankruptcy Law to include a balance sheet test, rather than only a cash flow test. This means that creditors will be able to take swifter action and commence bankruptcy proceedings against a debtor if that debtor is balance sheet insolvent, rather than wait for non-payment by that debtor. While in practise the decision to commence insolvency proceedings is situation specific, broadening the definition provides greater potential recourse and an early warning indicator for creditors to assist in making that decision. cont. on page 16
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legal
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cont. from page 14
The new Bankruptcy Law also expands the preventative composition procedure (PCP) and opportunity for rescue within a bankruptcy scenario, through the imposition of a moratorium on creditor action during the PCP. Secured creditors will be able to enforce their security, subject to court approval, notwithstanding a moratorium while the PCP or rescue within bankruptcy process is ongoing. Unsecured creditors will not have such recourse. Furthermore, criminal proceedings for bounced cheques against a director, shareholder or manager of a company will also be stayed once a creditor enters into the PCP or rescue within bankruptcy process. The creation of a financial restructuring committee (FRC) will provide a structured approach to the process of reorganising an insolvent debtor. The FRC will be responsible for selecting a roll of insolvency experts (possibly from private practise) and setting up public registers of insolvent companies and disqualified directors, which will be continuously monitored alongside preventative composition and bankruptcy proceedings. More guidance is expected to be provided in the near future. The new Bankruptcy Law is considered to be an important step towards modernising insolvency law in the UAE and providing a template to other countries across the region. According to a World Bank report on the ease of doing business, the UAE was ranked sixth in the Arab region and 104th globally for resolving insolvency. By updating the previous Banking Law; (i) creditors should benefit from greater likelihood of debt recovery when a debtor is struggling financially, and (ii) bankruptcy is beginning to become destigmatised in the region; which is expected to result in a reduction in the number of directors
and managers fleeing, and leading to better recovery for creditors and restructuring for insolvent debtors. MOVEABLES PLEDGE LAW UAE Federal Law No. 20 of 2016 on mortgaging moveable assets as security for debts (new Moveables Pledge Law) was published on 15 December 2016 and is now in force. While the new Moveable Pledge Law is a significant development in security arrangements for creditors, much of the necessary infrastructure remains outstanding and is expected to be introduced by way of implementing regulations in the near future. Under the Federal Commercial Transactions Law (previous Law), physical possession of moveable asset was required to be delivered to a creditor to perfect the security over that asset. Evidencing constructive possession through sufficient control by a creditor creates practical problems where a debtor needed to retain control of the asset. The new Moveables Pledge Law grants lenders the opportunity to create security without taking possession of the secured asset. Security over moveable assets may now be created by written agreement, which complies with the requirements of executive regulations that have yet to be introduced. The agreement can be registered electronically. Further legislation on who can access the electronic register and how, is to be introduced. Security created in this way will also extend to ancillary rights arising in connection with the secured assets following registration. The new Moveables Pledge Law allows a period of one year from the date of its enactment to register existing secured assets. It is worth noting that there is no requirement for a secured creditor to be a licenced UAE
bank under the new Moveable Pledge Law, although this requirement may be included in the later published executive regulations. The new Moveables Pledge Law provides self-help remedies to creditors depending on the nature of the security, such as set-off for secured bank accounts. These measures should help secured creditors recover debts quickly and in a more cost effective manner, without necessitating a claim before the courts. BANK CONSOLIDATION With increasingly challenging economic conditions which have adversely affected profits, regional banks are looking at ways to align synergies and keep costs low. The recent merger of FGB and the National Bank of Abu Dhabi to create First Abu Dhabi Bank (FAB) is the first real example of an anticipated trend of bank consolidation in the Middle East in response to an overcrowded market. The merger has created the largest financial entity in the UAE and the second largest in the Middle East. A more dominant market position, lower costs (reported to be 28 per cent) and greater cost synergies should allow FAB to be more competitive locally and internationally. IN A NUTSHELL Ultimately, the new Bankruptcy Law and the new Moveables Pledge Law enabling better positions for both debtors and creditors, should act as stimulant for liquidity and encourage bank lending across sectors to the drive the economy forward. Further bank consolidations might follow in order to increase competitiveness and profit margins. Legal developments are facilitating market growth and activity and banks and corporates are keen to take advantage.
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E-banking regulations against fraud threats in the Middle East Ahmad Sherif, Senior Fraud Research and Analysis Manager at Kaspersky Lab sheds light on the legal frameworks that protect various aspects of electronic banking systems in the region against cybersecurity risks
Ahmad Sherif
B
oth consumers and banks have benefited from the migration towards e-banking. Consumers enjoy the convenience of conducting many banking transactions with their computers or mobile devices, while financial institutions appreciate the cost savings from e-banking. Since the shift to internet banking and mobile banking has involved using new technologies, there are several risks to any bank willing to propose online services for its customers. This has accordingly urged the need for regulations, to achieve a better level of security assurance. In the Middle East, Saudi Arabian Monetary Agency (SAMA), Central Bank of Egypt (CBE) and Qatar Central Bank (QCB) have obliged all banks offering e-services to be compliant with their issued rules, and get prior approval if a bank wishes to implement transactions through internet banking. In these rules, regulators have endorsed principles and recommendations to protect against identity fraud, new account fraud, internal fraud and external fraud threats. For identity fraud, it has been advised that the financial institutions must use thorough authentication processes—such as dual factor authentication—to identify existing customers who access e-banking services. cont. on page 20
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MobileMobile Banking Banking Corporate Corporate 27x21 27x21 Ad.pdfAd.pdf 1 12/13/16 1 12/13/16 12:36 12:36 PM PM Mobile Mobile Mobile Banking Mobile Banking Banking Corporate Banking Corporate Corporate Corporate 27x21 27x21 27x21 Ad.pdf 27x21 Ad.pdf Ad.pdf Ad.pdf 1 1 12/13/16 1 12/13/16 1 12/13/16 12/13/16 12:36 12:36 12:36 PM 12:36 PM PM PM
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Moreover, local regulators have recommended that financial institutions should raise their customers’ awareness against phishing and pharming attacks. SAMA for instance, has explicitly obliged banks to protect their customers from online fraud attempts (phishing and pharming attacks) using a reliable professional process that enables the prevention, detection and response to these attacks. In addition to that, regulators have instructed banks to advise their customers to protect their credentials in a secure manner, create strong passwords, and instal appropriate security defences on their machines (e.g. antivirus and personal firewalls). CBE for instance, has recommended banks evaluate customer devices and be able to authenticate their transactions even if their machine is compromised. Regarding new account fraud, SAMA has obliged financial institutions to implement authentication processes necessary to initially verify the identity of new customers before they start any kind of relationship. On the other hand, CBE has mitigated new account fraud threats by prohibiting banks to register a new bank account using any of the electronic delivery channels (e.g. web channels). Instead, banks must apply the KYC rules issued by the Egyptian Money Laundering Combating Unit (EMLCU), in 2011, on new customers. To mitigate against internal fraud, regulators have instructed banks to segregate duties. In their regulations, QCB and CBE have promoted the use of a real-time fraud monitoring system to detect suspicious activities on financial transactions. Fraud monitoring systems must include an online
The threat landscape has become more sophisticated. Cybercriminals have been acquiring more information about latest security countermeasures and defences banks are implementing, and how to effectively bypass them. – Ahmad Sherif – authorisation decision process, the possibility to initiate queries, and propose a rule-based set of controls on rules that can be tailored to the need of the bank as well as to cope with future fraud activity trends. Regarding outsourcing processes to service providers, regulators have obliged financial institutions to provide detailed supporting documents along with their requests. Each regulator has set its binding framework to ensure that necessary controls and measures are in place between the outsourced financial institution and the outsourcing service provider to guarantee the integrity, confidentiality and availability of the outsourced function. Certainly, the growth of e-banking brought enormous benefits to banks and their customers. However, the growing scope of e-banking and the increasing complexity of banking products and services, has demanded the continuous adaptation
of regulatory frameworks and effective supervisory oversight. On the other hand, fraud threats have evolved in the region, fraudsters have shared information and conducted sophisticated fraud attacks, and we have encountered fraud incidents that have cost regional banks worryingly large sums of money to recover from. Based on our analysis, central banks and supervisory authorities have taken the right steps towards providing guidance to banks on implementing security controls in their e-banking products and services, improving customer experience. However, as the threat landscape has become more sophisticated, cybercriminals have been acquiring more information about latest security countermeasures and defences banks are implementing, and how to effectively bypass them. It is therefore essential to understand, differentiate and properly respond to these threats by having intelligencedriven response procedures in place, utilising cutting edge technologies— like artificial intelligence and machine learning—to analyse and understand the evolving threat landscape. Recently, Bahrain had taken an extra step forward, supporting the adoption of these advanced protection technologies based on a cloud hosting infrastructure to collect, analyse and learn actionable global and regional information about threat actors, their tactics, techniques, and procedures. To improve the industry’s detection and response to evolving threats, we recommend finding a way to enhance cooperation and information sharing within the banking sector community in the region. This will enhance the community’s readiness to face new complicated threats.
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Where banking is more personal
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What the customer wants Service quality is the key to success, according to Dr. Bernd van Linder, CEO of Commercial Bank of Dubai
Dr. Bernd van Linder
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ommercial Bank of Dubai (CBD) was established in 1969 by an Amiri Decree issued by the then ruler of Dubai, Sheikh Rashid Bin Saeed Al Maktoum. What started out as a joint venture between Commerzbank, Chase Manhattan Bank and Commercial Bank of Kuwait, evolved into a national public shareholding company by 1982. Dr. Bernd van Linder became Chief Executive Officer of Commercial Bank of Dubai in January 2017, having previously been Managing Director and Chief Executive Officer of Saudi Hollandi Bank (since rebranded as Alawwal Bank). In a wide-ranging interview with Banker Middle East, he began by offering his views on the UAE banking sector as a whole and in comparison, with the banking sector in Saudi Arabia: “My impression of the banking system and the health of the banking system is actually quite good. It is clear that the whole region, whether it’s Saudi Arabia or the UAE, has had its challenges with the low oil price, but I think governments typically have taken the right measures and have been very supportive for growth of the economy. I also think the fact that OPEC through its measures was able to stabilise the oil price, to put a floor on it, has helped to create some confidence. With regard to the banking system in particular, there are lots of similarities between the two countries. Banks are typically very well capitalised. If you compare them on a global scale, banks have very strong capital positions. They have strong liquidity positions as well, coverage of non-performing loans is very good. If you add that all together, the banking system is in good shape today.”
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Commercial Bank of Dubai Head Office: exterior (left) and interior (right).
Are high liquidity and high capital necessarily signs of good shape. Don’t banks make money by utilising those funds? First of all, you have to be in good health in order to lend money. If you don’t have enough capital and enough liquidity, there will be no lending. GDP growth in the UAE is good, in Dubai it is a little bit above that of the UAE as a whole. Credit growth in the country is in line or little bit above GDP growth. Opportunities are present in both corporate and retail banking.
Where do you see the competitive position of Commercial Bank of Dubai? We’ve been in the country for almost 50 years. Throughout that time, we have been seen as a bank by and for the family-owned and managed businesses in the UAE, not just in Dubai but across the UAE. We are proud of our relationship management. We stand by our clients
through economic cycles. We are truly a relationship bank. Traditionally we have a strong franchise in corporate and commercial but we are increasingly using that strength to expand in retail banking as well. If I would have to say one thing in which we distinguish ourselves from other banks, then it is truly customer service. We are an accessible bank, we are there to provide flawless, smart service to our clients.
That service requirement is changing as customer behavior changes. What is the role of a bank branch now? Whether it is retail banking clients, personal banking clients or corporates, people are focused on digital services. On the retail side, it is primarily mobile. On the corporate side, it is a combination of internet banking, mobile, cash deposit machines. Still I am convinced there will always be a role for the branch. When it comes to service,
to resolution of issues, where you need human interaction you need a branch to go to. There are certain transactions when you will want to go to a branch. Complex advisory on things like wealth management but also perhaps on mortgages, for example. For many people, buying a house is a once or twice in a lifetime decision. For those kinds of events you still want to go to a branch.
In what sectors, do you see growth potential? I think there is growth in every market and every sector. Dubai and the UAE is quite a diversified economy. There’s growth on the corporate side, growth from government investment in projects, such as Expo 2020, the development of Dubai South, etc., further real estate projects, and simply the growth that comes with GDP growth and population growth. Whether it is retail, SME or mid-sized and large corporates. I am very confident there will be growth in every sector. cont. overleaf
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Dr. Bernd van Linder, CEO, Commercial Bank of Dubai and Robin Amlôt, CPI Financial. (PHOTO CREDIT: FLORANTE MAGSAKAY/CPI FINANCIAL)
How is the business of banking changing through the impact of technology? The most visible aspect of new technology is on the front end but the biggest impact is on the back end. If you are able to digitise your processes, if you are able to make them paperless straight through, this has a massive impact on the efficiency and profitability of the bank, but first and foremost on the level of service you are able to provide. If you can provide a service to your customer that is straight through, error free, and real time, that is what customers expect. I believe the impact of technology will primarily be on the back office of the bank.
How would you assess the contribution of CBD in the economic and social development of the UAE? The logical answer to give would be that we are a bank, we are involved in financing projects that contribute to the growth and development of the economy: airports; roads; hospitals; schools. We are very active across the UAE. But there is more than that. CBD is very proud of recruiting and developing Emirati talent. We have our own graduate recruitment programme, Tumoo7, we hire fresh graduates, we train and develop them. Not all of them will stay with CBD but even then, if they go to the
government, to other banks, it’s still a contribution to the economy. It’s something that is very important to us. We also have active corporate social responsibility programmes in charities and sponsorship. As a bank, we make a direct contribution to financing the growth of the economy, we help to develop the human talent and through CSR.
How can we quantify how customer experience drives business value and profitability? I am not sure I can quantify it by giving you one number but I think there is nothing else.
cont. on page 26
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Introducing NBF Elham Specialised banking for Emirati businesswomen
In the UAE, women play an increasingly vital role in society and business. As a firm supporter of the country’s socioeconomic progress for over 30 years, National Bank of Fujairah is pleased to introduce NBF Elham, a business unit dedicated to providing bespoke solutions to Emirati businesswomen. Leveraging the bank’s business expertise, local insight and experienced female Emirati relationship managers, you can be assured of NBF Elham’s support as you continue to break new boundaries. Find out how NBF Elham can help you realise your ambitions and achieve greater success. Call 8008NBF(623) or visit nbf.ae.
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cont. from page 24
The only driver of sustained value and sustained profitability is customer service. The world has changed fundamentally in my opinion. Banking has always been about service much more than about products. To me banking products are fungible to a certain extent but even if they are unique, they are not unique for very long. Banking products are typically very easy to copy. The only differentiator in banking is customer service and customer experience. This is being emphasised even more with the advent of companies like Amazon and Netflix. They and others like them are setting a benchmark for customer service that is so high that every other company, including banks, has to meet it. It is what customers are starting to expect—real time responses, real time recommendations, straight through, zero errors, this is what you expect from Amazon and that’s what you expect from Commercial Bank of Dubai. In a way, the front-end app is the easy part. If you have a fantastic app but the back end is not right, if somebody still has to ‘retype’ you won’t be providing the flawless service that customers expect.
Would you agree that Commercial Bank of Dubai is best known, as the bank’s name would suggest, for its commercial banking offerings, particularly in treasury and cash management? We have a strong franchise in corporate and commercial banking but I think we are also much more than that. It is very hard to be a good corporate and commercial bank without being a good retail bank as well. You need a retail bank to provide reliable funding to the corporate and commercial bank. Also, on the asset side, retail assets offer some diversification away from
I have heard people say that banking in the coming 10 years will change more than in the previous 100 years and I think that may be true. – Dr. Bernd van Linder, CEO, Commercial Bank of Dubai – the commercial business. To grow in a sustainable way, you have to have both. The emphasis in recent years on growing the retail bank is exactly the right one.
Why do you need the retail arm as a source of funds? You can raise funds elsewhere but if you look at the global financial crisis the institutions that were hit hardest were typically the ones that were fully reliant on wholesale funding. That’s not a good place to be. In the medium to long term it is a very expensive place to be. Dealing with retail customers has its challenges but ultimately it is the right thing to do. We are a good corporate bank, we have relationships with the staff, with the owners and with the managers of our corporate clients. They expect us to provide the same high quality service to them as individuals that we provide to their companies. That’s how we entered into retail banking. We have broadened this over the last couple of years, aiming to bring the same high level of service to other retail clients. It is a diversified source of funding and assets and it is really the combination of corporate, commercial and retail that makes CBD a strong bank.
What innovations and smart banking services are you offering to your clients? We want to be default digital, our proposition is digital but we will always have wonderful branches with great staff providing excellent service. We want to be a digital leader. On the retail side, we came out with CBD NOW, the first digital only bank in the UAE [launched In November 2016, during UAE Innovation Week]. This shows our ambition to be a leader in the digital space. On the corporate side, we have digitised our offerings in cash management, trade and payroll and this is really where we need to go to because our customers demand and expect it but it is ultimately good for us too. It will make us an efficient, streamlined bank.
CBD is also active in partnerships with a number of governmental institutions in Dubai in particular, but also with Federal institutions— how important are these linkages to your business? They are extremely important! We are very proud to be the exclusive provider of wallet services to many of the government entities across the UAE through our public-sector payment offering. We have been doing that for a long time. More recently we built a relationship with the Federal Authority for Government Human Resources, which has a programme, Imtiyazat, that provides benefits to government employees. We are the exclusive banking partner to this programme. These relationships are truly winwin, they are important to us and they are important to the government entities as well. cont. on page 28
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The National Commercial Bank Realize Tomorrow
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CBD operates both conventional and Islamic banking. Where do you see the most potential for growth? Over the last couple of years our Islamic banking business [Attijari Al-Islami, launched by the bank in 2008] has grown much faster than our conventional business. We have a very strong offering and by year-end I would expect that around 20 per cent of our business will be Islamic finance-based. It is very largely being driven by customer demand. Whether its corporate, commercial or retail, we make sure we meet our customers’ requirements. They expect us to provide Shari’ah- compliant services so that is what we do. It is clear that the demand for these services has grown faster than the conventional side. Conventional banking will continue to be very important to us but I expect Islamic banking to be the fastest growing of the two.
What do you identify as the key challenges facing CBD now and in the future? I have heard people say that banking in the coming 10 years will change more than in the previous 100 years and I think that may be true. When you look at banking today, competition is fiercer than it has ever been and a country like the UAE is a good example, with 53 banks competing for essentially the same banking space. On top of that, new entrants, whether telecom operators, fintechs, digital-only banks, everyone wants to compete in this space! We also have regulation coming our way, Basel III, IFRS 9, that will all have an impact on the banking system. I am very pleased to say that I think the Central Bank of the UAE is going about this in exactly the right way and
The most visible aspect of new technology is on the front end but the biggest impact is on the back-end. – Dr. Bernd van Linder, CEO, Commercial Bank of Dubai – understands the proportionality of it all—the measures that we take should be proportional to the size and complexity of the banks. This is something that works extremely well, in my opinion. But the combination of competition, primarily driven by very fast technological developments, and increased regulation makes for a very challenging environment.
What does today's banking customer want and how does CBD meet their needs? Customers want hassle-free service. Things have to be right first time, done fast. The bank has to be responsive, transactions have to be done 24/7 at a location of the customers’ choice. When making an order from Amazon 24/7, customers expect to be able to deal with their banks 24/7 whether mobile banking, internet banking, ATMs or cash deposit machines. Service has to be 24/7 and I believe, increasingly customers will expect service to be omnichannel. You start a transaction in a certain channel, stop in the middle and continue in another channel. Technologically this is not easy to do but it is something that customers will expect. It works today that way with Amazon. I believe that anyplace, anytime, anywhere banking combined with an omnichannel approach is what customers will expect banks to provide.
What are the top priorities for CBD? The success of CBD will be driven by the success of our customers. We have to be relentlessly focused on meeting or exceeding our customers’ expectations. We have to make sure the whole bank is ready to do that; the bank has to be end-toend capable of doing that. My top priority is to ensure that the whole infrastructure whether people, tech, processes, front to back, is ready to provide the flawless service that customers expect.
Dr. Bernd van Linder became CEO of Commercial Bank of Dubai (CBD) in January 2017. He had previously served as the Managing Director and Chief Executive Officer of Saudi Hollandi Bank from November 2009 to December 2016. He was Acting Managing Director of Saudi Hollandi Bank since May 2009 and also served as its General Manager of Treasury. He was a Non-Executive Director at Wataniya Insurance Company between March 2016 and December 2016. He built his career at ABN AMRO in the Netherlands before moving to the GCC region and has a wealth of experience in retail, commercial and corporate banking and an excellent track-record in treasury, risk management and in leading strategic change processes. Dr. Bernd van Linder is a PhD holder in Artificial Intelligence from the University of Utrecht, Netherlands. He holds also a Master of Business Administration degree in Financial Management from the University of Bradford in the United Kingdom.
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Rising above adversity Things are looking up—Banker Middle East takes a look at Jordan’s road to recovery
A
ffected by the ramifications of the Syrian crisis, The Hashemite Kingdom of Jordan continues to experience sluggish growth and an increasing rate of unemployment. Although the fiscal deficit has continued to narrow, Jordan’s trade deficit widened in the first half of 2017, public debt remains elevated, which poses a risk to economic stability, and government finances are being stretched by the large influx of Syrian refugees. The Kingdom is estimated to currently host over 655,000 registered refugees—a situation that is believed to become more protracted. Nevertheless, the country’s economic growth is expected to marginally improve to an estimated 2.6 per cent average over 2017-2019.
ECONOMIC PROGRESS The gradual pick-up in growth from 2010 ended in 2015 as the Jordanian economy slowed down in 2016 for the second year in a row to an estimated two per cent from 2.4 per cent in 2015. According to the World Bank, this was mainly due to a weaker mining and quarrying sector, partly related to downward pressures on global potash prices, and to a combination of factors related to spillovers from the Syrian crisis, notably the closure of export routes to Iraq and Syria as well as lower tourism amid security incidents. World Bank numbers highlighted that unemployment reached an historical high of 15.3 per cent in 2016. Labour market conditions have remained challenging, particularly for youth and women, with the
unemployment rate increasing to 15.8 per cent in the second half of 2016 and to 18.2 per cent in the first quarter of 2017. Additionally, Jordan witnessed deflation for the second year in a row last year as consumer price inflation averaged at -0.8 per cent due to an average decline in international oil prices and lower food prices, while core inflation averaged 2.2 per cent. However, inflation is expected to accelerate this year, backed by the impact of higher oil prices on transportation, and higher prices of tobacco, education and personal care. FISCAL HEALTH According to reports, fiscal and external current account deficits narrowed last year. Fiscal deficit (before grants) reached an estimated
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Unemployment reached a historical high of
15.3% in 2016
Jordan’s economic digression was mainly due to a weaker mining and quarrying sector, partly related to downward pressures on global potash prices, and to a combination of factors related to spillovers from the Syrian crisis, notably the closure of export routes to Iraq and Syria as well as lower tourism amid security incidents. – The International Monetary Fund –
exchange rate peg. The Central Bank of Jordan raised policy rates in December 2016 and again in February 2017 by 25 bps and 50 bps respectively to maintain the JODUSD deposit rate spread and tackle rising dollarisation. 6.2 per cent of GDP following a number of measures introduced including the removal of 2015 goods and sales tax exemptions, reducing tax exemptions on imported used cars, increasing taxes on cigarettes and alcohol, and raising the transfer fees on car sales. Nevertheless, debt remains high at about 95 per cent of GDP with further pressures stemming from larger financing needs of the Water Authority of Jordan whose debt is government-guaranteed. The current account deficit (excluding grants) was 12.6 per cent of GDP in 2016, slightly higher than in 2015, reflecting the challenging regional conditions, the Syrian refugee crisis, and the slowdown in the GCC, which have affected exports, remittances, and other flows. While exports of goods deteriorated by 4.1 per cent and tourism receipts slowed, the trade deficit is expected to have improved led by a 6.2 per cent contraction in imports due to declining energy imports. Monetary policy has tightened as of December 2016 following the Fed’s lead and in support of the
(PHOTO CREDIT: SHUTTERSTOCK/NATANAEL GINTING)
31
REFORMS On 24 August 2016, the IMF Executive Board approved a threeyear extended arrangement under the Extended Fund Facility (EFF) for Jordan for an amount equivalent to SDR 514.65 million (approximately $723 million at the time of approval of the arrangement, or 150 per cent of Jordan’s quota) to support the country’s economic financial reform programme. The programme aims at advancing fiscal consolidation to gradually lower public debt and broad structural reforms to enhance the conditions for more social-friendly inclusive growth. The IMF Executive Board completed the first review of Jordan’s economic performance under the EFF’s Extended Arrangement in June 2017. This enabled the disbursement of SDR 51.465 million (approximately $71 million), bringing total disbursements under the programme to SDR 102.93 million (approximately $141.9 million). Most recently, the Joint JordanianPalestinian Higher Committee, which has not met in three years, held cont. overleaf
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cont. from page 31
Top 10 Banks by Assets (USD ‘000) Invest Bank - Jordan
1,339,318
Arab Banking Corporation (Jordan)
1,570,553
Arab Jordan Investment Bank
2,552,306
Capital Bank of Jordan
2,831,205
Bank of Jordan
3,298,786
Cairo Amman Bank
3,513,658
Bank of Al-Etihad
3,610,353
Jordan Islamic Bank
5,782,115 11,029,937
The Housing Bank for Trade & Finance
47,460,391
Moving forward, it will remain critical for Jordan to continue diversifying its energy supply in the medium term in order to reduce its macroeconomic vulnerabilities.
Arab Bank
– The International Monetary Fund –
Source: CPI Financial
Top 10 Banks by Liabilities (USD ‘000) Invest Bank - Jordan
1,107,523
Arab Banking Corporation (Jordan)
1,348,963
Jordan Islamic Bank
1,840,525
Arab Jordan Investment Bank
2,241,425
Capital Bank of Jordan
2,359,967
Bank of Jordan
2,717,070
Cairo Amman Bank
3,037,903
Bank Al-Etihad
3,172,830
The Housing Bank for Trade & Finance
9,534,802
39,295,855
Arab Bank Source: CPI Financial
high-level meetings on 27 September 2017 in Amman. The event witnessed the signing of five agreements at the Prime Ministry during a summit headed by Jordanian Prime Minister, Hani al-Mulki and Palestinian Prime Minister, Rami Hamdallah. The committee’s goals are to strengthen and improve relations between Palestinians and Jordanians on all fronts. In addition to that, to relieve pressures on sovereign finances and boost the economy, the Jordanian government opened its first jobs centre
inside a refugee camp in August, reported FocusEconomics. It is also reforming work permits that would allow refugees to seek employment in the construction sector. Jordan’s economic growth prospects are expected to remain tepid over the medium-term. Nevertheless, the World Bank believes that Jordan has an opportunity to vitalise green growth and undertake climate action as part of a sustainable solution to addressing Jordan’s fiscal, economic and climate vulnerabilities.
POTENTIAL HURDLES One of Jordan’s challenges is to navigate the storm of spill overs from the Syrian crisis. However, the IMF suggests that the major challenge for the Jordanian authorities remains stimulating growth and job creation while reigning in the fiscal deficit. Nonetheless, short of a positive shock such as the reopening of trade routes with Iraq or a peaceful conclusion to the Syria conflict, the IMF believes it to be difficult to foresee a significant jumpstart to growth unless structural reforms are implemented at a quicker pace. Given this challenging social environment, the introduction of fiscal adjustment measures to contain the deficit and ease reliance on grants from donors will continue to prove difficult. THE ROAD AHEAD Jordan’s economy is expected to register a 2.3 per cent growth in 2017. A slightly higher uptick is forecasted in the medium-term to an average of 2.6 per cent over 2017-2019. The impact of reforms related to stimulating privatesector investments (such as through improving predictability
cont. on page 34
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JORDAN
in numbers JORDAN: BANKING AND FINANCIAL DEVELOPMENTS (2005–2017) 22
25
19
4
20
18
3
15
15
0
0
While NPLs have continued to decline, profitability has receded. Banks' NPLs and Return on Equity NPLs (in per cent of total loans) NPLs net of provisions (in per cent of equity) Return on equity
15 10
7 n-1 Ja
5
n-1 Ja
n-1 Ja
3
n-1
n-1
Ja
Ja
n-1
2
1 n-1
Ja
Ja
n-1 Ja
Stock prices have rebounded recently.
5000
600
Bond Spreads and Amman Stock Exchange Index
4750
500
4500
400
4250
300 200
4000
100
4
Ju n-1 5 De c-1 5 Ju n-1 6 De c-1 6
0
De
c-1
4 n-1
Ju
Ju
-13
3
3500
De c
0
n-1
3750
Amman Stock Exchange - General Index Eurobond Spread 1/ Eurobond Spread 2/ JP Morgan EMBI Global Spread
2
5
20 Source: World Bank
6
5
4
10
1
0
2
05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 *
17
1/ 5-year $750-million Eurobond issued on 8 November 2010 with a3.875 per cent coupon. This bond was repaid on 3 November 2015. 2/ 10-year $500-million Eurobond issued on 3 November 2015 with a 6.125 per cent coupon and maturing on 29 January 2026.
Source: Jordanian authorities; Bloomberg; and IMF staff estimates
JORDAN’S PUBLIC DEBT (2016) (In per cent of total) Total public debt
Jordan’s economy is expected to experience a 2.3 per cent growth in 2017 and 2.6 per cent over 2017-2019
30
16
*Preliminary.
2.3%
35
5
05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 20 15 20 16 *
GDP GROWTH
Excess reserves Remunerated deposits with CBJ Holdings of CBJ CDs "Excess JD Liquidity/Deposits (RHS","%)"
6
20 Source: The World Bank (2016)
Banks' liquidity (In JD billion)
21
20
10m
7
Capital adequacy ratio (In per cent)
20
25
1m
Liquidity has tightened over the last few months but remains comfortable.
c-1
9.45 million
The banking sector continues to be well capitalised.
De
POPULATION
External
39%
Domestic
Total external debt
46%
Total domestic debt
34%
31%
32%
32%
65%
61%
Bilateral
37%
3%
20% Multilateral
Total multilateral debt
Private
Banks
Central Bank
Non-banks
IMF
World Bank
Others
Source: Authorities and IMF Staff
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country
spotlight
cont. from page 32
of regulations, improving access to finance for small and medium enterprises, and trade facilitation), and higher exports due to the European Union’s relaxation of Rules of Origin should kick-in, and sectors such as tourism and construction are expected to improve. The current account deficit is expected to narrow over the mediumterm but not before widening this year due to higher energy imports on the back of higher oil prices. In the medium term, The IMF anticipates higher exports of garments, phosphate and potash, and a turnaround in exports of services, notably positive inflows of remittances from the GCC given higher oil prices and positive growth in tourism receipts. Fiscal consolidation will continue along with revenue-enhancing measures. While financial viability
The major challenge for the Jordanian authorities remains stimulating growth and job creation while reigning in the fiscal deficit. – The International Monetary Fund – of the energy sector has improved, financing needs in the water sector continue to pressure the debt situation. Given Jordan’s peg to the USD, monetary policy is also expected to continue tightening in line with the Fed’s expected rate hikes. Furthermore, rising interest rates will contribute to a spike in Jordan’s borrowing costs.
Jordan / Macro outlook indicators
(annual per cent change unless indicated otherwise) 2014
Real GDP growth, at constant market prices Private Consumption Government Consumption Gross fixed Capital Investment Exports, Goods and Services Imports, Goods and Services Real GDP growth, at constant factor prices Agriculture Industry Services Inflation (Consumer Price Index) Current Account Balance (%of GDP) Financial and Capital Account Net Foreign Direct Investment (% of GDP) Fiscal Balance (% of GDP)a Debt (% of GDP)b Primary Balance (% of GDP)a
Moving forward, it will remain critical for Jordan to continue diversifying its energy supply in the medium term in order to reduce its macroeconomic vulnerabilities. Sound economic policies and growth-enhancing reforms will also be necessary to reduce the country’s sensitivity to external shocks. Finally, creating conditions for increased private investment and improved competitiveness will remain indispensable for Jordan to stimulate job-creating growth. Capital Intelligence Ratings has affirmed Jordan’s Long-Term Foreign and Local Currency Ratings of ‘BB-’ and ‘BB’, respectively, as well as its Short-Term Foreign and Local Currency Ratings of ‘B’. The agency revised its outlook for Jordan’s Foreign and Local Currency Ratings to ‘Negative’ from ‘Stable’.
3.1 -2.6 6.5 2.1 7.5 -0.9 3.2 7.6 3.9 2.7 2.9 -7.3 4.3 5.8 -14.2 89.0 -10.5
2015
2016 e
2017 f
2018 f
2019 f
2.4 8.5 3.6 -8.0 -9.0 -3.0 2.6 5.0 2.2 2.6 -0.9 -9.1 7.1 4.3 -6.9 93.4 -3.4
2.0 4.7 6.5 -10.6 -5.0 -2.5 1.6 -2.2 1.4 1.9 -0.8 -7.3 3.1 4.0 -6.2 94.8 -3.0
2.3 1.4 4.2 3.4 5.2 3.8 2.4 1.0 2.3 2.6 3.2 -8.5 4.1 4.1 -5.0 94.5 -1.6
2.6 0.2 1.5 4.7 9.2 3.7 2.6 1.2 2.8 2.5 2.2 -7.4 4.2 4.4 -3.1 90.1 0.4
3.0 0.0 2.3 9.5 9.7 5.3 3.2 1.8 3.4 3.1 1.9 -59 2.4 4.7 -2.2 86.1 1.3
Source: World Bank. Macroeconomics and Fiscal Management Global Practice. Note: e = estimate, f = forcast. a Includes fiscal gap of 0.3% of GDP in 2017, 2.0% of GDP in 2018 and 2.5% of GDP in 2019 b Government and guaranteed gross debt. Includes WAJ estimated borrowing for 2017-2019.
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36
digitisation
Will Islamic banks or fintechs realise the $227 billion digital opportunity? Fadi Yazbeck, Product Manager at Temenos highlights the importance of digitisation for Islamic banks
T
echnology is now considered integral in our daily lives. It allows us to access a huge range of services, and to view masses of information instantly. Purchases and payments can (and are now expected to be) made from anywhere at any time. Banks are having to join this digital revolution to survive and Islamic banks are no exception. A report by Deloitte and Noortel (supported by Dubai the Capital of Islamic Economy), highlighted in particular that “Populous OIC countries are emerging as high growth Islamic Finance markets, but low penetration and GDP per capital is driving the need for access to digital funding services.” Annual digital market spend is expected to reach $4.3 trillion by 2020 and of that $227 billion is expected to derive from Muslim communities. However, are Islamic banks completely ready for this opportunity? Digital is so much more than channel capabilities. EXPERIENCE-DRIVEN BANKING While the majority of banks offer digital channels, a truly digital bank should cover both the customer and the execution experience, providing a personal, targeted approach.
Fadi Yazbeck
At Temenos, we are seeing a dramatic shift to true digital banking realisation, and Islamic banking is no exception. Customers today want a different relationship with their financial services providers. They want their banks to become more involved in their commercial and financial lives. Surveys show that people would expand their relationship (or pay more) in return for providers giving expert advice, finding ways for them to save money, rewarding their loyalty and proactively recommending products and services that they really need. When financial providers combine this kind of personalised service with other information, such as context and channel preferences, they benefit from experience-driven banking. Islamic banks can use data to deliver high
value customer insights, at the time and place customers need it and over their preferred channel. For Islamic banks to offer true experience banking, they need channel solutions to deliver Shari’ah-compliant products and services for any business line, across all self-service and assisted channels, for both bank staff and customers, in any language and optimised for any device. And for a truly seamless experience, all of this should be available from a single user experience platform (UXP). THE DIGITAL OPPORTUNITY FOR CORPORATES The opportunity for digital banking goes way beyond offering just mobile personal banking but it’s not just retail banks and their customers that can benefit from the digital revolution. Islamic digital corporate banking offers accessibility and convenience for all, particularly for those businesses based rurally. The right solution enables a corporate user in any location to respond instantly to real-time information at a time and place they need it. Digital corporate services means minimising the need for business managers to attend meetings with their bank managers face to face, leading to increased interactions due to greater ease and as a result cont. on page 38
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A remarkable track record of long-term growth. An award-winning reputation.
Since launching in 2006, Gulf Capital has become one of the region’s most successful alternative investment firms. We have built a track record of delivering long-term returns and industry-leading results that has made us the firm of choice for regional and global investors. www.gulfcapital.com
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Best Private Equity Firm in the Middle East, 2011, 2012, 2013, 2014 and 2015 Best Alternative Investment Firm, 2016
16/03/2017 13:03 17:32 15/10/2017
digitisation
38
cont. from page 36
higher retention and cross-sales rates. Video, screen-share and even live chat assistance offer instant access, saving time and money on travel. Digital brings not only customer service advancements but also empowerment. Solutions such as hybrid tablet client applications, which are based on a multichannel UXPs, are giving corporates greater control which in turn means lower operational support requirements for banks. These platforms should integrate into the financial institution’s existing extranet/ internet infrastructure and be highly configurable. They give corporates the control to modify their standard application very easily using intuitive screens, and display any information available within the portfolio management tool in real-time from anywhere. STARTING AT THE CORE Banks within the Middle East are now starting to realise the opportunity and invest. Examples include Arab Bank for Investment & Foreign Trade (Al Masraf), who recently confirmed their move to a new front-to-back solution to support their ‘ambitious growth plans and improve their ability to bring innovative products to market more quickly and efficiently’. I’m personally working with the team at Al Masraf, they have recognised that they must focus on instant customer fulfilment, easy integration with the bank’s other systems and full exploitation of the bank’s data assets. Realtime, innovative, integrated and open banking software at the core is essential though to deliver a unique and differentiated customer experience. The full picture must be considered; if your core isn’t able to process in real-time and seamlessly connect to the channel then the benefit of digital is lost.
A QUICK SOLUTION TO DIGITAL EFFICIENCY However, achieving operational efficiency continues to be a major problem for some, with operating expenses on average being 50 per cent higher for Islamic banks. These legacy systems are starting to become a hindrance in the execution of digital strategy for financial institutions, the cost to fulfil a digital offering is too high. Digital banking is becoming more sophisticated across the world and progressive renovation is increasingly seen as a way of quickly accessing this market. Progressive renovation allows banks to increase their reach in terms of services, improve customer experience and cut the cost of technology and operating costs without wholesale change. Rather than add to the complexity of their existing systems by adopting apps individually, banks approach their requirements holistically, adding capabilities using software-as-a-service hosted in the cloud for example. This way, change can be made slowly, step by step, and services can be migrated to a new platform when the bank is ready. However, although progressive renovation addresses the challenge of digital efficiency, this does not address the high overall operating expenses that Islamic banks continue to witness. To reduce these operating costs sufficiently, a new, single core solution is required. One that is componentised to allow for progressive renovation, yet also seamless and future-proof in order to evolve and adapt, ensuring the issue of legacy is eradicated permanently. ENABLING THE MOVE TO DIGITAL Being a truly digital bank means offering the right customer insights at the right time, via the right channel. The quality of the overall
user experience requires banks to draw insights in real-time and from multiple datasets. Other elements such as modularity, deployed in stages, allow for faster time-to-value and lower risk and upgradability (perhaps independently). Ensuring banks always stay ahead of market trends (with tools to design and deliver new Islamic banking products), should also be considered. Open API’s must be accessible; ensuring that easy access to innovation and services. All this whilst driving massive efficiencies in a Shari’ahcompliant back-office, achieved through front office differentiation with back office automation. Moreover, the speed of fulfilment is also critical, the digital solution must therefore be front-to-back. It ultimately comes down to using a single platform, a recent shift in banks decision making highlighted within the recent Ovum Decision Matrix: Selecting a Digital Banking Platform, 2017–18. According to the EY World Islamic Banking Competitiveness Report 2016, the boards of most of the 40 systemically important Islamic banks are set to spend between $15 million and $50 million over the next three years on digital initiatives. They are ‘well aware that inaction could cost up to 50 per cent of their retail banking profit in next few years’. But the opportunity is so much more than just in retail banking, it stretches to corporate, private and beyond, however, all rely on having a core to that can adapt as your digital strategy evolves. A core that supports Shari’ah compliance according to your individual needs. One that connects seamlessly to any channel, enabling instant fulfilment. Digital is part of our daily lives, instant is expected, it’s not the future, it’s the now and without it in banking there may be no future.
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digitasition
40
Enabling financial inclusion Building financial inclusion in Egypt starts with digital innovation. Pieter Zylstra, Digital Strategy Advisor at Orange Business Services, explains how a new fintech ecosystem helps meet the banking needs of consumers in Egypt
A
ccording to the World Bank, only about 15 per cent of Egypt’s adult population (aged 15+) has a bank account, resulting in a banking services gap of around 50 million Egyptians. The banking sector is going through a period of disruption, driven by digital technology changes, evolving consumer habits, changing industry regulation and increasing service-delivery costs. In the increasingly competitive banking market, it is vital to offer innovative products to win new customers and boost loyalty, to differentiate and drive operational efficiencies. Digital transformation is rapidly being adopted by the financial sector as a means to accelerate the launch of new innovative digital, personalised and profitable banking services. Consumers are increasingly using social media to find out about banking and insurance services and mobile devices, instead of traditional bank branches, are becoming the preferred channel for financial transactions. Launching these innovative and costeffective digital banking services will not only help retain increasingly demanding consumers but more importantly expand access to those currently underbanked. In many developing countries, such as Egypt, a large proportion of the population is still not served by the
traditional banking system. According to the World Bank, only around 15 per cent of Egypt’s adult population (aged 15+) has a bank account (a traditional current or savings account) resulting in a banking services gap of around 50 million Egyptians—usually the more rural populations and those on lower incomes without access to vital banking/financial services. In the wider Middle East, for example, around 14 per cent of adults have a bank account, according to the World Bank’s Global Findex Database, whereas in high-income OECD countries 94 per cent of the population has a bank account.
According to the World Bank, only about
15%
of Egypt’s adult population (aged 15+) has a bank account resulting in a banking services gap of around
50 million Egyptians
Pieter Zylstra
Research clearly shows that an increase in financial inclusion is a contributing factor in GDP growth, making this a central issue in economic planning for any country, including Egypt. Currently, the principal barriers to adoption of financial services are a lack of consumer education and awareness of the services currently available and their benefits, and the relatively high cost of delivering banking services through traditional channels, which makes them prohibitively expensive. In Egypt, fintech innovation currently focuses on the area of mobile payments, leveraging the high penetration of phone ownership in Egypt. This means that the basic infrastructure for mobile financial services is already in place and presents a viable channel through which financial inclusion can be achieved. Establishing this ecosystem should encourage entrepreneurship in the country, resulting in fintech startups that can contribute to financial inclusion and job creation. This could also help establish Egypt as the fintech start-up hub in the region.
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42
Untapped opportunities in Africa Speaking on the sidelines of the ALN Annual International Conference, Dr. Cheick Modibo Diarra, Chairman of Africa Legal Network discusses the nature of Gulf investments into Africa
Dr. Diarra participated in panel discussions at the ALN Annual International Conference.
D
ubai has often been referred to as a gateway to the African market, to what extent is this true, and if so why is that the case? Dubai has positioned itself for a long a time as the gateway to Africa. The access to the Dubai is easy, creating a business in Dubai is easy, being able to actually transfer money and being compatible with Dubai law are easier. Dubai also has its own Chamber of Commerce which has been doing a lot year after year and this can be seen in the Global Business Forum Africa,
an event organised by the Dubai Chamber of Commerce where head of states from Africa are invited along with people from across the region to enable networking. This creates a platform in Dubai where African decision makers can talk to investors coming from all over the world. I think this image is sticking more and more and this is why when you look at our own annual conference [the ALN Annual International Conference], which we originally intended to do in Dubai and other places, but after we came to Dubai for the last four years
we’ve been stuck there because it really the ideal place where all the business people from all over the horizon can meet. It is also a very important destination from a capital perspective because the access and accessibility is there, the laws are there, the type of people that you need to meet are there. All of the world seems to be crossing in Dubai and because of that if we need to do business then creating a bridge that goes from Dubai across the waters all the way to Africa will be the most navigated road to being able to do business on the continent. cont. on page 44
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investments
44
cont. from page 42
We have already seen significant investment flows heading from the Arabian Gulf to Africa, where have these investments been targeted? We have seen some specific investment from the gulf that has gone into four major areas, at least to my knowledge. The first one is infrastructure, for example you can look at the $16 billion that was committed by Abu Dhabi companies to transportation projects across West Africa in 2014 then there is a $36 million project announced by the fund for Arab Economic Development in 2015 that is an invested to mend the highway in Senegal. Then another area that has seen investment is in the area of agriculture. You have the United Arab Emirates Al Dahra Agricultural that is investing in wheat farming in Egypt and we have the Saudi companies that have invested heavily in agricultural centres in Sudan. The third area that we have seen investment from the Gulf into Africa is in the financial services realm. Whilst fourthly we have seen investment in consumer goods and the retail sector which will continue to grow across the continent. I have the impression that you know Africa is now more and more being seen as the last frontier of investment that will actually give you a good return. Along with the traditional extractive sectors, such as minerals and gas, these new areas are being added and the people from the Gulf are people who have positioned themselves and developed relationships with Africa and with African decision makers.
Why has the Gulf become a player in this area? I think it is because it really is a sound investment that came from
responsibilities are very important, the cultural aspects are very important. I believe that it is because of all of this that we have seen this trend coming.
In which areas are we likely to see investment in the future?
Dr. Cheick Modibo Diarra
a good analysis of the return of the investment. There are also many things in common historically, religiously, culturally, we have a lot in common, people have been traveling between these two parts of the world for millennia. That is important but especially there has been very sound analysis, very strong reason to invest and we have a similar philosophy in making money. The way that we invest and the way that we assume our corporate social
The areas of investment that I see as rising in the near future would be that of healthcare and education because these are two areas that Africa is really demanding for the simple reason of demographics. Three to four years ago the population of Africa passed the one billion mark, with huge growth predicted in the future, it’s going to be a huge market with a lot of people and the population is also very young; the average age is below 35 across Africa. These kinds of young populations are in need of training, capacity building and healthcare—if you look at the average age it is low because life expectancy is not that high. If middle class starts emerging and economies start improving, people will invest more and more into health, good healthcare and quality healthcare, but at the same time they will invest even more in the areas of education and preparing the next generation to be able to take advantage of all the investment opportunities that are emerging. We need to have more and more people ready to take advantage of those opportunities by training them and educating them.
Dr. Cheick Modibo Diarra is the former Prime Minster of Mali and Chairman of ALN (Africa Legal Network). He was the Prime Minister of Mali from April to December 2012 and the chairman of Microsoft Africa from 2006 until 2011. He is a goodwill ambassador for UNESCO and also served as the CEO of the African Virtual University, based in Kenya, in 2002—2003.
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THE HERITAGE OF YOUR WEALTH...
Licensed and regulated by Central Bank of UAE
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600 546656
www.nationalbonds.ae/prestige
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Investments
(PHOTO CREDIT: SHUTTERSTOCK/TURGAYGUNDOGDU)
46
Reinventing the wheel Qais Al Khonji, CEO of Genesis Projects and Investments, sheds light on the crucial realities of investment and economic diversification in this region
S
ince the 1960s, oil has been the Omani economy’s driving force. Today, although Oman is not a member of OPEC (the Organisation of the Petroleum Exporting Countries) it is the largest producer of crude oil in the Middle East due to major enhancements in its oil recovery methods amongst a few other things. Though oil prices have dropped and Oman has showed its support very recently by decreasing oil production through cutting out
45,000 barrels a day from total daily oil production, prices have already begun to stabilise. Unfortunately the GCC is heavily dependent on oil production, for example in the Kingdom of Saudi Arabia alone, over 70 per cent of the country’s revenue comes from the oil industry which is a direct hit at the economy when prices and demand are both unstable. There has also been a slow though steady rise economic growth in emerging markets which has driven
demand for oil, while a slowdown in economic growth in bigger and more powerful countries has affected prices too. These different extremes have also added to this instability, in addition to sanctions being lifted from Iran which also affects production and price. This, coupled with other factors have led to a serious decline in international oil prices which have affected the GCC greatly. It’s time to consider finding other sources of revenue to save not only the GCC economies, but the whole Middle East as well. So far only Dubai has succeeded in becoming independent of any oil dependency by establishing itself as a global hub for travel and tourism, with over 20 per cent of its GDP coming from tourism revenue. Real estate is also a powerful player in Dubai, but tourism takes the cake. It is a well-known fact that a few years ago both Oman and the UAE were the ones who had the greatest progress in decreasing the oil and gas component of our exports, thus decreasing some potentially dangerous vulnerabilities from both our economies. But what about other sectors that can support and stabilise economies heavily dependent on oil? cont. on page 48
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29 November 2017 Kuala Lumpur, Malaysia
For more information please contact CPI Financial’s events team Tel: +971 4 391 4682 or Email: events@cpifinancial.net
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Investments
48
cont. from page 46
There should be more focus on technology, innovation and even manufacturing. Why import if you can localise it and produce it? You not only cut costs but you increase jobs as well which is always great, and once you have perfected your manufacturing and logistics and are able to manage demand and increase output, you export and have a steady stream of revenue and decrease risk of external competition that some countries have become dependent on. Something I do not agree with. Some serious insight is required to determine what each country needs and how to sustain itself without dependence on oil, then set targets and put the plan in motion to reach these goals, with complete focus.
There should be more focus on technology, innovation and even manufacturing. Why import if you can localise it and produce it? – Qais Al Khonji – For example, could not relying on technology mean learning from the Chinese government’s example in blocking Facebook then releasing their own specialised social networking site Renren? Advertising alone on Facebook results in millions of dollars pouring in daily, now imagine how it would affect all our countries in the Middle East if there was a Facebook alternative and it even had its own advertising platform? Or should an industrial approach be
Qais Al Khonji, CEO, Genesis Projects and Investments
taken, let’s take Japan for example, a major economic power in the world with the main power behind its economy lying in its manufacturing industry. We can even say the same about Germany’s high technology manufacturing methods. And even for the Netherlands, the largest cheese producer in the world despite not having the highest number of cow farms worldwide! I think these examples are enough to draw light on the management weaknesses that are visible.
One question is, should we as the rest of the Middle East invest heavily in tourism the same way Dubai has done to become a successful worldwide tourism hub? Or should we put our focus elsewhere? We all know that a change needs to take place, and this change, albeit hard will be a good one for the Middle East, but would require serious actions to be taken with a devoted mindset.
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transaction
banking
50
Corporates require all-encompassing solutions, in real time. (PHOTO CREDIT: SHUTTERSTOCK/EVERYTHING POSSIBLE)
The way forward Rahul Jaykar, Head of Global Transaction Services, Products and Trade at Mashreq, discusses future of corporate transaction banking
C
THE CHANGING TREND orporates today are focused more than ever on technologies and insights that drive consolidation and integration. Treasurers and financial managers not only need quick access to reliable financial data at a consolidated level but toward that end, they demand real-time, or at least near-real-time, details about transactions, cash positions, and enterprise-wide liquidity. They want systems that enable them to streamline payment operations, improve internal controls, better manage liquidity, and greatly improve the integration between each element of their financial supply chain. What has changed the trend in the last few years? Multiple factors have played catalyst towards adoption
Rahul Jaykar
on technology, however the key factors can be attributed to: the shift towards cost efficiency in the financial downturn has also been a great driver for embracing technology; entry of millennials in the corporate world has created a higher level of openness in moving towards digital solutions; and the quest for innovation to be the best in the industry. WHAT DO CORPORATES SEEK? Clients use a wide range of accounting and financial systems that generate information in different formats and different sets of data based on the industry vertical they operate. Despite these variations, however, when clients look to their bank for integration services, they expect the bank to be easy to do business with and to provide automated and seamless data connectivity and integration. In short, banks are now just an extension of their own setup—a partner in true sense. Not just that, when looking for solutions, if one talks about cash management it would be assumed that the solution would largely be related to either collections or payments or liquidly management. Similarly if one was looking at trade cont. on page 52
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.ﻃﺮﻳﻘﺔ أﺧﺮى ﻟﻼﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات another way to invest in real estate.
اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري ﺑﺄﻣﺎن وﺑﺴﺎﻃﺔ ﺗﺘﻴﺢ ﻫﺬه اﻟﺸﺮﻛﺔ.ﺻﻨﺪوق اﻻﺳﺘﺜﻤﺎر اﻟﻌﻘﺎري “أو "رﻳﺖ" ﻫﻮ ﺻﻨﺪوق أو ﺷﺮﻛﺔ ﺗﻤﺘﻠﻚ ﻋﺪد ﻣﻦ اﻟﻌﻘﺎرات و ﺗﻌﻤﻞ ﻋﻠﻰ در اﻟﺮﺑﺢ ﻣﻨﻬﺎ . ﺑﺬﻟﻚ ﻳﺘﻮﻓﺮ ﻟﻠﻤﺴﺘﺜﻤﺮ ﺑﻴﺌﺔ آﻣﻨﺔ وﺑﺴﻴﻄﺔ ﻟﻼﺳﺘﺜﻤﺎر.اﻟﻔﺮﺻﺔ ي ﺷﺨﺺ ﻳﻮد اﻻﺳﺘﺜﻤﺎر ﻓﻲ اﻟﻌﻘﺎرات ﺷﺮاء أﺳﻬﻢ اﻟﺸﺮﻛﺔ
real estate investment made safe and simple A REIT, or Real Estate Investment Trust, is a company that owns real-estate properties and generates incomes from these properties. It allows anyone to invest in real estate in a safe and simple way: through the purchase of shares.
www.reit.ae www.theresidentialreit.com Registered and licensed by DFSA and ADGM
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52
transaction
banking
cont. from page 50
finance or supply chain finance, one would assume handling either post sales or presales, either documentary credit or open account, either balance sheet funded or off-balance sheet. When one starts putting together solutions offered successfully they form patterns of what works and what does not, interestingly you will find common trends if you put together solutions which your bank would have offered to corporates in the same industry. THE QUEST FOR EXPERTISE It is clear that not one digital channel or solution alone fits all. Each client in a specific industry has a unique set of business arrangement with its counterparties and technology requirements based on their corporate treasury organisational structure, geographic footprint, and treasury technology sophistication. A consistent financial institution brand experience is important to corporate clients, but the experience has to be tailored to the needs of each client according to the industry in which the client operates and more importantly tailor made to their unique needs. For the largest, most complex organisations, an even more bespoke and customised experience is critical. Banks need to develop a holistic digital strategy that will result in the creation of an agile solution which is simple to use and gives consistent customer experience. BUILD A VALUE PROPOSITION Considering clients perspective and showcasing this understanding of clients core business processes and systems infrastructure is the first step towards creating value. Sharpening this client understanding into an expertise that is built around the experience leads an institution to become the primary bank. There are various methodologies behind creating these values.
As the world continues to get digital, so will corporates. Agile and digitally advanced products should not just meet but exceed customer requirements. – Rahul Jaykar, Head of Global Transaction Services, Products and Trade, Mashreq – It is imperative that one follows a disciplined approach. The following may be some of them: plot your client’s working capital cycle and analyse the same while understanding client needs; understand the client’s key counterparties and their relationships; understand the peculiarities that makes this industry different from others; speak the client’s language i.e. language commonly spoken in that industry, for example, sweet and sour product would have different connotations in oil & gas industry than in the food industry; understand the client’s own processes and ERP systems; and track the industry that your client operates in, the country of operation and on global scale. The objective is so that you can structure solutions that are relevant, seamless and reliable; crucial to effective working capital management and business planning. Banks will need to be focused on creating robust and reliable solutions that are flexible, in order to meet the different business requirements of wide spectrum of customers. No matter what the size and complexity of the company’s financial operations are, whether
operating a centralised or decentralised treasury, a shared service centre, or simply initiating transactions from the desktop or mobile, banks will need to deliver solutions which are relevant to the industry and their business. SHARPEN YOUR TOOLS AND STAY CURRENT At all points in time, products and services need to continue to revolve around our clients who are indeed central to long term goals. Not only that the solutions should strive to fulfil their needs on an end-to-end basis. Analysing the challenges of clients and key decision makers should be of paramount importance at all times. The key objectives for the corporate CFO is to align financial strategies with business goals and at the same time, be nimble to take advantage of opportunities available. With the market situation being very dynamic, key challenges revolve around risk, controls, information, access, liquidity and efficiency. Going forward, the experience, recognised expertise and the value showcased to corporates will hold in good stead for the evolving needs of the corporates in the EMEA region and beyond. As the world continues to get digital, so will corporates. Agile and digitally advanced products should not just meet but exceed customer requirements. Show a continual return on investment of your solutions with a focus on outcome from the corporate perceptive. Consistently discuss the experience with your customers to develop relationships. Preach ‘best practises’ in the industry and the value of those best practises to customers. In a rapidly changing environment, it is important to be relevant, both in terms of technology and knowledge in order to present value and comparative advantage to corporate.
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- ADVERTORIAL -
How to cash in with customer experience solutions Yaser Alzubaidi, Engagement Solutions Sales Leader for Asia Pacific, Middle East & Africa (AMEA) at Avaya
B
anks today need to remember that for their customers, time really is money. It should be no surprise then that we all want to be able to get our banking tasks done as quickly and effortlessly as possible— whether that is on-the-go or sitting with an adviser at the local branch. In response, banks in the Middle East are constantly on the lookout for new technologies to help them deliver a more seamless customer experience. Compared to other industries, banks have traditionally been leaders in this field. They have the incentive to invest as they hold large numbers of customers and prospects, as well as conducting a high volume of interactions with those customers on a monthly basis. Moreover, getting the customer experience wrong can be particularly costly for banks. According to Avaya’s recent Customer Experience in Banking Survey, we found that as many as 41 per cent of banking customers in UAE and 52 per cent in KSA would change their bank as a result of bad customer service. Banks therefore face continued pressure to evolve at the same rate as the changing behaviours of their customers. Technology’s integration into daily life has created the expectation for rapid access to services, including banking, and simply reducing wait times and offering strong rates aren’t sufficient. Banks must combine the best of traditional and modern capabilities, using highly-skilled agents and efficient contact centres with streamlined channels powered by artificial intelligence (AI), such as chat bots and automation tools. This applies not only to second and third tier banks trying to win business from the top end, but also for market leaders who are battling
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- ADVERTORIAL -
Yaser Alzubaidi
to retain their market share. Yet what is it that customers really desire from their banks today? Our Customer Experience in Banking Survey uncovered the extent to which consumer behaviour is shifting. In the GCC for example, consumers show a strong preference for wanting to resolve their basic banking-related issues through the convenience of a mobile app or other self-service channel without having to speak to someone directly over the phone. Almost a quarter (24 per cent) of respondents in both Saudi Arabia and the UAE said that a mobile app was their preferred channel to conduct transactions, behind only India and South Africa and much higher compared to just eight per cent of consumers in Germany and 10 per cent in France. In markets like Saudi Arabia, 40 per cent of respondents actually said it was a
priority to have everything on their mobile device—the highest out of nine countries surveyed globally. While more robust digital channels are one way for banks to improve the customer experience, traditional engagements cannot be ignored. Almost a quarter of those in Saudi Arabia and a fifth of those in the UAE would still prefer to visit their bank’s branch and speak with a relationship officer for services. This type of breadth in preferences makes banking a sector that needs flexibility and an understanding of the new consumer, where individualisation is fast becoming the expectation. Ultimately, a bank should be able to allow a customer to make initial
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contact via the platform of their choice and very quickly have their issue resolved. Should the matter require escalation, the bank should then allow that initial communication to transition to a more appropriate media—like a phone or video call— without forcing the customer to wait in a queue, repeat the issue, or re-identify themselves several times. By operating with this type of usedriven model, banks can accommodate what customers identify as the most important factor influencing their interactions with a bank: having the same level of experience regardless of their choice of channel. There are still gaps to plug. Long wait times continue to cause concern, with 25 per cent of UAE customers citing this as a key issue. In markets like KSA, customers are also frustrated as 28 per cent cite being asked to visit the physical branch to solve their request. This yields poor return on investment for banks which spend significant capital on training agents and providing them with the appropriate resources to do their jobs. The bottom line is that consumers in the region today expect nothing short of a highlysophisticated banking experience— and the customer is always right. Banks which elect to be first movers in driving digital capabilities via the likes of voice biometrics, chatbots and other forms of AI will be better able to improve loyalty and increase profitability. Likewise, those who fail to listen to their customers’ demands and evolve their services accordingly may soon find their business heading elsewhere.
For more information, please visit us online or e-mail Yaser Alzubaidi at alzubaidi@avaya.com
www.bankerme.com
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in-depth
Islamic investing In an exclusive interview with Zeinab Hashim, CEO & Managing Director, ADIB Capital highlights the firm’s successes and her experience of working in the Shari’ahcompliant banking space
B
efore joining ADIB Capital what were your previous roles in this industry? And how has your education contributed to your success? That is a very interesting question because my early education was actually science-oriented with a Bachelor’s of Science in chemistry and physics from the American University in Cairo and a Master’s of Science in solid state physics. It was only my second graduate degree—a Masters of Public Administration from the Kennedy School of Government, Harvard University— that strengthened my position in the financial sector and finally brought me
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I believe however that a multifaceted education is an excellent basis for understanding ever-evolving industries and the constant innovation that greatly attracts investments. Before joining ADIB Capital I was Treasurer of National Bank of Egypt. Between 1976 and 2005, I was also the Treasurer for Barclays Bank Egypt and for Citibank Egypt, Tunisia, Turkey, Gabon and Jordan.
How does ADIB Capital serve the investment needs of ADIBEgypt’s customer base? ADIB Capital delivers tailored Shari’ah-compliant financial solutions to its diverse client base, including government, private sector companies and middle market firms. Since its establishment in October 2012, ADIB Capital has executed transactions worth EGP 18 billion and boasts a solid pipeline that has witnessed exponential growth,
The healthcare, education, food and beverage and retail sectors have a long-term positive outlook as do several other industries, particularly those involving Egyptian manufacturers for import substitutes with proven export track records. – Zeinab Hashim –
contributing to ADIB Egypt’s brand image and cementing its position as a market leader, substantiated by Bloomberg rankings. ADIB Capital is focused on three lines of business in Egypt including Mergers and Acquisitions, the Debt Capital Market and the Equity Capital Market, advising and arranging Shari’ah-compliant financing, including syndications, with an emphasis on supporting national infrastructure projects.
What differentiates ADIB Capital’s investment banking offerings from its competition? I believe our most important asset and standout characteristic is having a team whose members have in-depth market knowledge and who are able to gauge market sentiment from a conventional banking perspective and apply this knowledge to utilise Shari’ah-compliant products that provide equally, or even more effective market solutions compared to conventional alternatives. Our team is able to meet the demands of a very specific clientele with a preference for Shari’ah-compliant solutions but who will not compromise on the return on their investments either. We constantly reevaluate our existing products and introduce new ones that address emerging needs or gaps in the market. One such offering are Sukuk which—once executive regulations are passed -will be utilised as a new financing tool to specifically —but not solely—meet asset managers’ investment needs.
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These include Mudharaba, Murabahah, Ijarah and Istisnah and Forward Lease. As noted, their popularity stems from their ability to meet the demand for both Shari’ah compliance and competitive return on investment. Financial advisory for such products compared to conventional banking products is essentially the same and therefore concepts need not be fundamentally rethought.
How has ADIB-Egypt’s Investment Banking changed in your tenure? Since our founding in 2012 we have established a solid foot-hold in the market, supporting our clients’ investment needs. ADIB Capital’s deal closures have contributed to cont. overleaf
What are the most popular products and services your investment banking clients utilise? Our most popular products are those used in raising funds in a Shari’ah-compliant manner.
Zeinab Hashim
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cont. from page 57
ADIB Egypt being listed in Bloomberg EMEA’s market leader rankings since 2013 and cementing its position in 2016. In 2016 ADIB-Egypt ranked first Islamic Financing Bookrunner in Egypt and 11th in Eastern Europe, Middle East, and Africa (EEMEA) with a three per cent market share, more than double its share in 2015.
What are your thoughts on the Islamic investment landscape currently? What are the key areas to invest in? The Islamic investment landscape is not really different from its conventional peers. As long as sectors meet potential investors’ criteria such as being consumer-driven they will attract investors from both sides of the spectrum. The healthcare, education, food and beverage and retail sectors have a long-term positive outlook as do several other industries, particularly those involving Egyptian manufacturers for import substitutes with proven export track records. We also believe that there are a significant number of untapped resources in the Islamic domain that represent an opportunity for our investment clients.
What have been some of ADIB Capital’s most successful financing agreements? One of our milestone agreements that we are tremendously proud of was accomplished last year. We were awarded International Finance News’ “Mudharaba Deal of the Year” award for our landmark Egyptian Electricity Transmission Company (EETC) EGP 2 billion transaction. This was in fact the second time we have won this award, after 2014 and it remains a great honour for us. The EETC is an affiliate company of the Egyptian Electricity Holding Company (EEHC) focused on
Since its establishment in October 2012, ADIB Capital has executed transactions worth
18 billion
EGP
managing, operating and maintaining the electric power transmission grids on extra and high voltages across Egypt, ensuring their optimal economic usage. Our agreement helped drive its on-ground transformation and financed the expansion of EETC’s transmission network.
Do you see ADIB Capital as playing a role in driving the Egyptian economy forward and contributing to the country’s infrastructure and progress? Absolutely, in fact we consider providing tangible support to the economy by helping secure financing for vital infrastructure projects and domestic industries a top priority. ADIB Capital has a longstanding track record supporting Egypt’s energy needs and the aforementioned agreement with the EETC is a clear example. In 2012 ADIB Capital acted as the Initial Mandated Lead Arranger, Bookrunner, Facility and Security Agent for the East Delta Electricity Production Company (EDEPC), on a Syndicated Mudharaba deal worth $110 million. ADIB Capital began financing energy sector projects early on and seeks to expand its efforts in this field, particularly with recent oil and gas discoveries promising a highly profitable future for the industry and the possibility of diversifying activities to incorporate more complex processes that will greatly benefit the economy in the long run.
ADIB Capital also acted as the IMLA and Bookrunner for the EEHC in an EGP 1.6 billion transaction in April 2015, as well as the Global Coordinator in a EUR 40 million transaction in April 2017. ADIB Capital also previously acted as the IMLA and Bookrunner for EETC in February in an EGP 2 billion deal and as the IMLA and Bookrunner in a $150 million transaction with the Egyptian General Petroleum Company (EGPC) in September 2015, as well as acting as the Financial Advisor in a $200 million transaction with the same authority.
Though vital, ADIB Capital’s success is one aspect of ADIBEgypt’s overall success, how do perceive your parent company’s most recent successes? Each subsidiary has a role to play helping contribute to ADIB-Egypt’s overall success. ADIB-Egypt’s most recent financial statements—for H1 2017—are testament to its stellar achievement, affirming the upward trajectory of its performance indicators. ADIB Egypt has successfully launched innovative products and services and continues to upgrade and expand its network infrastructure, bolstering its presence and enhancing the experience of customers. ADIB Egypt’s performance has been recognised regionally and globally winning numerous international awards over the past few years.
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T H E
Q U E S T
F O R
E X C E L L E N C E
PRODUCT AWARDS 2017/2018 July 2017 call for nominations • Oman • Bahrain September 2017 call for nominations • Kuwait • Levant October 2017 call for nominations • Qatar November 2017 call for nominations • United Arab Emirates January 2018 call for nominations • Saudi Arabia A list of the proposed categories will be circulated to banks and financial institutions in each country. Institutions may nominate products in as many or as few categories as are applicable. Nominations will be showcased on www.cpifinancial.net in four distinct sections: • Retail • Investment • SME • Corporate Registered readers of Banker Middle East, Islamic Business & Finance, WEALTH, FinanceME and www.cpifinancial.net will cast their votes and select the winners. These awards provide an excellent benchmark for the banking sector and our winners are recognised across the region’s media outlets for their success in this field.
For more information, please contact: OMER HUSSAIN +971 4 391 5419
omer@cpifinancial.net
CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E. Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net
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in-depth
Deplomatic tensions in the region may hamper business confidence and potential inward investment. (PHOTO CREDIT: SHUTTERSTOCK/GRODFOTO)
Anticipating budding headwinds Tom Rogers, Economic Advisor at ICAEW points out the potential hurdles GCC economies may face going into 2018
A
part from issues emanating from global trade volumes and low oil prices, what other challenges do you expect GCC economies to face for the rest of 2017 and in 2018?
The region as a whole, and Qatar in particular, will lose out from the ongoing disruption to trade, investment, and travel flows as a result of the diplomatic tensions. The direct economic impacts are likely to be fairly modest outside Qatar itself, but the impact on business confidence (particularly amongst potential inward investors) could be more substantial. Moreover, cooperation on regional economic policy issues such as the implementation of VAT in 2018 and trade policy could also be at risk from a further deterioration of relations. cont. on page 62
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AMEX_PlatinumRevite-SAFARI_Ad_BankerMiddleEast-2017-21x27cm+bleed copy.pdf
1
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Evening safari. Private dinner. Close encounters. Unforgettable.
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Applicable for residents of UAE | Kuwait | Bahrain Oman | Jordan | Lebanon | Egypt | Qatar *Terms & conditions apply. This Card is issued by AMEX (Middle East) B.S.C. (c) pursuant to a license from American Express. American Express is a registered trademark of American Express. AMEX (Middle East) B.S.C. (c) – Emirates is regulated and licensed by the Central Bank of the UAE. AMEX (Middle East) B.S.C. (c) is regulated and licensed by the Central Bank of Bahrain as a Financing Company.
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Our working assumption is a gradual phase in, with around
50%
of the consumer basket affected in 2018, increasing gradually to cover all household spending in the following
5 years
This adds to the broader challenge of diversifying away from extractive based activities and spurring a greater role for the market and non-oil sectors in particular. Many economies in the region have set out ambitious reform plans, and while government deficits remain high it will be important for markets to see progress being made against these plans.
How would you suggest to address these challenges? Strengthening the role of price signals in the economy, by making households and firms bear the true costs of resources consumed, is a key start, and several governments are moving in this direction with energy subsidy reform. However, wage expectations are also important, especially for native-born workers. If economies in the region are to become more competitive in sectors other than those heavily linked to oil, they will need to align wage expectations with workers’ productivity, or design more efficient wage subsidy schemes to boost
Tom Rogers, Economic Advisor, ICAEW
private sector employment. Finally, governments will need to continue to make public spending more efficient, in particular by prioritising spending in areas that support long-term economic growth.
What is your outlook on the GCC countries once VAT kicks in? How long will these markets take to adjust? With VAT set to be introduced at the start of 2018, but with exemptions at the discretion of national
governments, it’s not yet clear to what extent households will be exposed to the full impact of VAT. Our working assumption is a gradual phase in, with around 50 per cent of the consumer basket affected in 2018, increasing gradually to cover all household spending in the following five years. As such, the greatest impact on household spending is likely to be felt in 2018, especially since the squeeze on public spending should ease in most economies in the following years.
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- ADVERTORIAL -
Geoff Cook
Chief Executive, Jersey Finance Limited
Jersey: Supporting the Needs of an Increasingly Sophisticated GCC Market KUWAIT
BAHRAIN
With a strong and growing presence in the region, Jersey is increasingly providing a range of private wealth management services to GCC clients, as Geoff Cook, CEO of Jersey Finance, explains:
Jersey has a well established, strong and positive presence in the GCC, and is now not only a leading jurisdiction amongst GCC investors for a range of private wealth management services, but is also diversifying the range of family office, succession planning and investment solutions it offers in the region. Jersey’s appeal is clearly based on two key ingredients for GCC investors - substance and stability, which continue to be key factors to success against the backdrop of shifting markets and a changing global political landscape. The range of expertise and products Jersey can offer – not least its world-renowned trust, foundation and company legislation and Shari’a-compliant services – together with its political and economic stability combine to form a compelling proposition, setting it apart from its competitors. Demand The indications are that the demand for this sort of expertise is to continue. This year’s Global Wealth Report by the Boston Consulting Group found that private wealth in the Middle East is growing by an impressive 8.5%, and that GCC investors are placing a greater focus on internationalising and diversifying their wealth planning strategies. Further, the findings of a white paper published by Jersey Finance in conjunction with Hubbis earlier this year reinforces this positive trend. It revealed, for instance, that whilst over half of professionals working with family businesses in the GCC (55%) saw succession planning as the most critical issue for Middle East families today, there is still a tendency to default to deferring succession decisions, which can prove costly in the long run. The paper also found that there are real misconceptions around the issues and solutions available when it comes to wealth structuring. Most (56%) GCC-based advisers said that loss of control is the biggest misconception that local families have when it comes to wealth structuring. linkedin.com/company
QATAR
KINGDOM OF SAUDI ARABIA
UNITED ARAB EMIRATES
OMAN
Although this offers some considerable challenges for wealth professionals advising GCC investors and families, it also highlights the importance of experienced professionals in IFCs like Jersey, who are used to managing complex cross-border financial flows, and supporting investors to achieve their future wealth and succession planning ambitions. As a result, we are seeing a rise in private wealth vehicles being re-domiciled to Jersey structures from less advanced jurisdictions. Diversify Meanwhile, whilst Jersey certainly remains a clear jurisdiction of choice amongst GCC investors for private wealth management services, this has been accompanied by a rise in appetite to diversify investment portfolios through outbound investment, particularly in the alternative asset classes. Commercial real estate investment is a case in point where Jersey is leading the way, thanks to its flexible structures for acquiring and selling such assets, focusing on the UK as well as Europe and the US. As GCC families tackle the complex issue of succession planning whilst also exploring more diverse investment opportunities, expert advisers will be increasingly sought after. Jersey is ready to meet this need, by bringing clarity to the complex world of finance and supporting investors in managing their assets effectively. For further information on Jersey’s world-leading private wealth management services, contact either Richard Nunn or Cormac Sheedy, Jersey Finance Business Development Directors for the GCC: E: richard.nunn@jerseyfinance.je E: cormac.sheedy@jerseyfinance.je T: +971 (0) 4 319 9923 vimeo.com/user17505711
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technology
The age of extreme automation By Yogeshwar Shivshankar, Associate Vice President—Consulting Group, Maveric Systems
T
he new drivers in the banking technology world are moving towards a shift left strategy, with emphasis on defect prevention over defect detection. This has led to innovative ways of validation, with intelligent testing taking preference over brute-force tests. Automation in this domain has also evolved to accommodate this shift-left strategy with all banks focusing on improved customer experience, speed-tomarket and scalability demand as its key drivers. This has, inevitably led to smarter approaches, methods frameworks in automation, combined with the use of a set of tools very different from the conventional ones. WHAT IS EXTREME AUTOMATION? The main purpose of extreme automation is to cater to the new drivers in the digital banking technology landscape and also new methods in validation. The various areas of extreme automation can be broadly classified. (see Table 1) Automation, traditionally has been test-focused, subsequent to the development of the product under implementation. This implied that automation had maximum coverage on UI (application) based tests,
followed by a small percentage of middleware/services tests, and a negligible percentage on the backend, unit/standalone tests and database. However, with the evolution of extreme automation, this pyramid has been completely inverted, with a large percentage of automated tests being distributed across the middleware (services) and backend (unit/standalone and database) and only a small percentage of tests (mainly structured exploratory tests) at a UI level.
This, coupled with the orchestration of data, has resulted in a significant reduction of defects across the SDLC. (see Table 2) EXTREME AUTOMATION IN PRACTICE In practice, implementation of extreme automation is best achieved through mapping its various elements across the SDLC. Every phase of SDLC incorporates a certain element of automation, which through its introduction, has a significant impact on key measures in that phase. This is, agnostic to the delivery model, waterfall or agile, and the implementation of these can be taken up in a phase wise manner, explained in the way ahead section. Table 3 is a representation of many extreme automation elements and how they fall in place through the SDLC phases. Also, defined are the significant impact on some of the measures at the respective stages and the efficiencies and intangible benefits that would result from implementing these elements.
Table 1 • Use of structured test design script languages like/ BDD / TDD • Use of AI / model and rule test design tools
• Overnight build validation test • UI based, middleware and backened automation
Rapid Automation
Design Automation
Data Automation
Environment Automation
• Synthetic data creation using automated scripts / data creation tools • Re-use of production data after scrambling
• Service virtualisation stubs and mocks • Automated creation of environments in the cloud
Source: Maveric Systems
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Table 2 Traditional Automation Target areas
Extreme Automation (inverted automation triangle) <10%
UI test (Business process / UAT regression)
Middleware tests (Integration, service test)
Backend tests (unit, database)
Source: Maveric Systems
UI tests (Business process / UAT regression)
60-80%
20-30%
30-40%
50-70%
Middleware tests (Integration, service test)
Backend tests (unit, standalone, database)
<10%
Table 3
Software Development Lifecycle
Elements of extreme automation Requirements Definition Development
Quality Assurance Release and Production
Potential benefits
• Structured requirements definiion • BDD / TDD script design
Up to 15% efficiency in requirements leakage 100% traceability adherence
• Discrete unit, service and DB level automation • Synthetic data generation • Service virtualisation / stubbing
Up to 75% reduction in unit defects Up to 15% efficiency in code coverage
• Integrated front end, middleware, backend and DB automation • CI / CD QA implementation • Environment and data automation
30%+ reduction in defect density 25% more efficient TAT 75% automation
• CI / CD release implementation • Automated alert mechanisms
100% alerting system 20% efficiency in ticket resolution Fully automated release
Source: Maveric Systems
WAY AHEAD While there is no one-size-fits-all method for extreme automation, there are some broad principles by which we can achieve implementation across the enterprise in a phased manner. Big bang approaches towards such implementation have often met with limited success in practise, due to the extremely broad spectrum of changes that an enterprise needs to undergo in all phases of the SDLC in order to achieve desired outcomes. Therefore, it is essential to start with one business and technology
layer, implement the necessary changes in the respective layers in three phases of implementation, and then move on to the next set of business and technology layers. Since the implementation of extreme automation is largely still seen as a QA-led initiative in most organisations, it is best to implement the elements of extreme automation initially in the QA phase, with efficiencies being shown through rapid automation. (see Table 3) This, very quickly, will translate into significant QA efficiencies, reflecting
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in lower defect densities, significantly increased automation percentages and automation effectiveness percentages. In this phase, there is also an ability to implement the CI/ CD frameworks which would drive continuous delivery throughout the QA phase, right from data automation to test environment and release automation. The subsequent approach is to address the elements at the requirements validation phases, through the introduction of structured design languages and model based test design. These would, in effect, introduce a very robust method of requirements validation and traceability, along with the ability to use the structured design in subsequent of automation of both code, and test. The final phase of introduction of extreme automation at the release stages, where the principles created at the QA phase for continuous integration and delivery, can be implemented from an enterprise level for an automated end-to-end requirement-to-release DevOps engine. This, is usually done as the last stage, since it would require significant buy-in from the IT Ops with regards to a risk, operational acceptance and compliance perspective. CONCLUSION Effective automation among financial services is around 20 per cent. This should double in the next three years due to the maturing of various automation tools, as well as the need to adopt such solutions to meet the business demands. It is imperative to have an early start here as it would help in enabling an automation index to track the progress across various stages along with it coverage across the enterprise.
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technology
AI in financial services: the next frontier Abhijit Duge, Industry Principal at Finastra discusses the imperatives for financial institutions to stay relevent in today’s market landscape
AI performs a task that a human would accomplish in about 45 minutes in only about two minutes. (PHOTO CREDIT: PESHKOVA/SHUTTERSTOCK)
A
t the 2017 Money 20/20 European FinTech conference, Antony Jenkins, former CEO of Barclays and current CEO of 10x Future Technologies, warned that banks could be facing their very own “Kodak moment”. Failing to keep up with the pace of rapidly developing technologies could lead to banks falling into irrelevance. Various industries such as automobile, oil and gas and manufacturing to name but a few, are seeing rapid changes in processes and consumer demands with fast advances in technology for driverless cars, ride sharing, electric vehicles and 3-D printing. New and disruptive technologies are fundamentally changing the business models in these industries. Banking and financial services are also facing major disruption. The rise of fintechs and, more recently, regtechs are forcing banks to radically rethink their business models. More than ever before, financial institutions must leverage technology to either create, or offer new and innovative services. Banks can no longer rely on conventional practises. They must adopt and deploy a range of new and advanced technologies across all of their services. A few of them are currently reshaping banking: • Machine Learning (ML) • Artificial Intelligence (AI) • Natural Language Processing (NLP) • Robotic Process Automation (RPA) • Distributed Ledger Technology (DLT) cont. on page 68
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Digitalisation, innovation, and automation are demanding such technologies and quickly forcing established players to rethink roles and processes across the board. As Jenkins said, “As the technologies develop and season, they are going to create a totally different way of doing banking and financial services.” Financial organisations cannot ignore this wave of innovation. They must learn how to embrace the rise of the machines in financial services if they do not want to become completely irrelevant. DRIVING FORCES Key forces are driving these changes and their impact can be felt throughout the whole banking space globally. Regulation: The structural impact on capital markets of the everchanging regulatory environment is all too visible. While Basel III is forcing banks to optimise their capital deployment strategies, the upcoming Fundamental Review of the Trading Book (FRTB) will force them to exit certain desks or stop dealing in certain instruments altogether. Such regulations have also imposed a massive burden on banks in the form of operational and technology infrastructure costs. Cost pressure: Margins and profitability have come under pressure while growth is still proving elusive. Banks are reassessing their cost structure with even more scrutiny than before and are looking hard at trimming all that appear superfluous. Shifting markets: Many financial institutions are exiting markets and shutting down business units where returns have been substandard to focus instead on their core markets and core competencies. At a global level, banks struggle to deliver a decent return on equity (ROE), barely staying above their
Abhijit Duge
cost of capital. Pre-crisis ROE levels of 13 per cent and above now seem like distant memories and impossible to reach considering higher capital requirements and lower profits. IN PURSUIT OF OPERATIONAL EFFICIENCY As banks devise new ways to temper the regulatory capital shortfall under Basel III and improve their ROE, they are taking a harder look at costs in their business. Having identified the need for improved operational efficiency and automation as key focus areas to extract the most cost reductions, they now need to take advantage of technologies such as robotics and AI. Applying AI and robots to manage various daily banking operations has allowed banks to achieve their cost reduction targets by significantly cutting down offshore and back office jobs. Such technologies have also helped financial institutions to transform their businesses through efficiency gains. Financial organisations are now turning to RPA to automate repetitive clerical tasks and activities previously done by humans. According to a recent KPMG report, in the next 15 years, it appears likely that 45 per cent, and perhaps up to 75 per cent, of existing offshore jobs in the financial services sector will be performed by robots, “that is expected to translate into enormous costs savings of up to 75 per cent”. Many global banks are actively looking at applying AI to carry out compliance activities such as Anti-
Money Laundering (AML), KnowYour-Customer (KYC), monitoring of suspicious activities, and many other. According to a Citigroup (NYSE: C) report, the biggest banks have doubled the number of people in their compliance and regulation divisions in the last few years. This represent a cost of $270 billion a year for the industry and accounts for 10 per cent of operating costs. Using AI in the regulatory space will trigger some substantial savings. UBS (VTX: UBSG), JPMorgan Chase (NYSE: JPM), and Goldman Sachs (NYSE: GS) have all been pushing AI solutions to trading floors. They use ML to optimise trading strategies for their clients, resulting in massive productivity gains. According to UBS, AI performs a task that a human would accomplish in about 45 minutes in only about two minutes. AI also has an impact on headcount and Goldman Sachs estimates that “four traders can be replaced with one computer engineer” who can effectively code the machines to optimise trading strategies. AN IDEA WHOSE TIME HAS COME Global venture capital investment in fintech grew by 11 per cent to $17.4 billion in 2016 according to PitchBook data. As banks aggressively pursue their strategic cost-cutting exercises and try to reclaim a competitive advantage over their peers, financial institutions consider deploying disruptive technologies as the means to achieve their goals. While the pace of adoption will vary across emerging and mature markets, the sheer transformation brought by these new technologies will make for some compelling discussion at the top level of the banking industry. As the French writer and poet Victor Hugo famously said, “There is nothing so powerful as an idea whose time has come.”
www.bankerme.com
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23/10/2017 16:33
Profiles in Leadership An important new series from CPI Financial, the Middle East’s leading financial and business publishing house. In challenging times, clear and dynamic leadership is the key to business success. CPI Financial’s new series Profiles in Leadership will identify and define those qualities necessary to succeed, profiling successful individuals and their businesses.
CPI Financial TV CPI Financial TV is proud to launch a new online Leadership series. We are conducting a series of in-depth, on-camera, face-to-face interviews with the key players in the Middle East banking and financial services sector. Dubai Islamic Bank The longest-established modern Islamic bank is one of the leading financial institutions and our interview with its Group CEO launched our Leadership series on 10 September 2017. You may watch the full interview online or alternatively view key segments of the interview individually. Who’s next? Our Leadership series launches with Dr. Adnan Chilwan of Dubai Islamic Bank. Look out for more great interviews in the coming weeks. We already have Patrice Couvegnes, CEO of Banque Saudi Fransi, and HE Abdul Aziz Al Ghurair, CEO of Mashreq, lined up with even more to come… Unparalleled insight Understand how the region’s top bankers view the challenges and opportunities their institutions face… and the plans they intend to implement. Identify ambition Whether in the domestic, regional or international arena you will be able to see for yourself just what is in store in the evolution of one of the world’s most dynamic economic arenas and for the institutions helping to bring economic dreams into successful reality. Bookmark CPI Financial TV Bookmark CPI Financial TV now to make sure you stay in touch and on top of these unique insights into the region’s banking and financial services industry.
IN-DEPTH INTERVIEWS
Dr. Adnan Chilwan Group CEO Dubai Islamic Bank
Patrice Couvegnes Group CEO Banque Saudi Fransi
HE Abdul Aziz Al Ghurair CEO Mashreq To learn more, contact: OMER HUSSAIN
CPI Financial FZ LLC • PO Box 502491 Al Shatha Tower, Office 1209 Dubai Media City, Dubai, U.A.E.
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Tel: +971 (0) 4 391 4681 • Fax: +971 (0) 4 390 9576 • www.cpifinancial.net
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technology
(PHOTO CREDIT: SHUTTERSTOCK/SKINTONE STUDIO)
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Data analytics to enhance customer experience in financial services Farhan Syed, Partner and Cristian Carstoiu, Directorâ&#x20AC;&#x201D;Consulting at KPMG Lower Gulf
T
here has been increased talk about how data analytics can compromise the safety and security of customer data. Despite this, there is growing evidence to prove that harnessing data can significantly enhance strategic decision making, drive growth in the business and reduce costs for banks.
Data can prove to be a treasure trove of insights which can help banks understand and predict customer behaviour and accordingly develop products and services tailored to suit their requirements. The banking and financial services industry involves daily customer interaction, and innovation in data and analytics (D&A) can help
enhance customer experience and loyalty. Apart from launching tailored products and services, D&A also helps in credit or fraud prevention through analysis and monitoring of data patterns. A pioneer of leveraging digital technology and a company shaping the future of banking through the use of big data analytics is DBS from Singapore. cont. on page 72
www.bankerme.com
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The company developed a programme that enables it to leverage big data technology and distinguish abnormal transaction activities from normal activities in the trade finance space and improve overall customer experience. Another example is Deutsche Bank, which launched a digital data factory in Dublin named ‘The Hive’. The establishment serves as a centre of excellence for data science and analytics. The bank uses a wide range of analytical tools and technologies to support a range of its initiatives to service clients’ needs. In the UAE too, there is no doubt that data is increasingly gaining importance against the backdrop of the Smart Dubai initiatives which aim to digitise the nation’s banking and financial sector, among other sectors. FGB, which after the merger with National Bank of Abu Dhabi (NBAD) is First Abu Dhabi Bank (FAB), last year said it would use big data and business analytics solutions for better customer profiling and 360 degree customer insights. Sensing the potential in this economy, KPMG announced the expansion of its global strategic collaboration with Microsoft to the Middle East and Africa region. Based on Microsoft’s Azure, the collaboration helps clients gain access to services and solutions that combine industry insights, cuttingedge technology and innovative ideas, enabling businesses to achieve the next level of growth while managing risks and ensuring compliance and security. The data analytics solutions enhance productivity for clients with an integrated data analytics platform using Power BI and Structured Query Level (SQL) Server tools, turning data into actual insights. Since the launch of the collaboration,
Farhan Syed, Partner, KPMG Lower Gulf
over 100 KPMG clients have already benefitted from the tailored and scalable solutions. The use of data analytics is particularly relevant in the age of millennial banking which involves developing products and services for a class of customers that are extremely digitally-savvy and are looking for simple products. As part of its AED 500 million investment towards digital innovation and multichannel transformation over the next three years, Emirates NBD launched Liv, a digital bank targeted at millennials. Through the Liv app, customers can scan their Emirates ID to open their bank account and carry out activities like fund deposits and transfers and bill payments, among others. CBD UAE, ADCB and Mashreq were others who launched or announced plans of launching digital services.
Cristian Carstoiu, Director—Consulting, KPMG Lower Gulf
Another trend that is being observed is the increasing investment in financial technology. Boosted by the exponential growth in smartphone penetration, fintech investment is expected to grow 270 per cent in 2017, with the number of fintech companies expected to jump to 250 by 2020 from 105 at the beginning of 2016, according to a report titled State of Fintech from WRL and Payfort. The higher traffic generated through all these digital innovations in the sector is bound to generate astronomical amounts of data and banks and other financial services institutions will need to sieve through them to remain relevant to their customers. The pressure is on to deliver highly relevant and tailored offerings to customers and data analytics could very well be the answer the industry is waiting for.
www.bankerme.com
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15/10/2017 10:01
Monday 27th November 2017 | Godolphin Ballroom | Jumeirah Emirates Towers
Knowledge partner
Supported by
Organised by
To register your interest in attending, please visit out website, drop us an email or give us a call.
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personality
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Asim Bukhtiar Head of Research & Advisory, Saudi Fransi Capital
H
ow did you start your career?
I was consulting to large financial services clients and became interested in equity research while completing my MBA. It might have been the glamour of trading floor that pulled me in— so I decided to pursue the CFA charter. I moved to Saudi Arabia, keen to broaden my market exposure, particularly as exchange listed companies and investors develop.
What is your biggest achievement thus far? Equity research was at an infancy stage and not a priority for Saudi banks when I moved here eight years ago. The challenge was to convince senior management of the value sell-side research brings. I have been fortunate that my case was bolstered by increasing sophistication of domestic investors, push by the regulator and client demand. This has resulted in greater stock coverage and headcount. With Saudi market getting on the radar of international investors, sell-side research is being viewed as a strategic function. I still get asked if I can ‘quantify’ the value of sell-side research. I wish I could.
Can you describe your day-to-day routine in your line of work? My daily routine varies substantially. I arrive at work at 7am, catch up on emails and news headlines, gather thoughts for the morning meeting. The rest of the day is spent working on research reports, talking to clients on the phone, meeting management teams of the companies covered, site visits, internal and external meetings. Normally I finish the day wrapping up admin tasks.
What do you like most about your job? When I or my team make a great call on a stock. Client appreciation and feedback is important.
I really enjoy interacting with clients on top-of-mind ideas, helping to sketch an investment rationale. Second, meeting with management teams and learning about their challenges and mitigating strategies is amazing. Over the years in Saudi, I have met some extremely talented business leaders with clear vision of where they want to go and how they will get there. Third, I feel privileged to be working with some very bright individuals who help increase my knowledge.
What book are you currently reading now and what is your all-time favourite book? I am currently reading The Prize by Daniel Yergin. Really enjoying it. Extremely well researched and written, puts many things into perspective. My recent favourite book would be Lords of Finance by Liaquat Ahamed.
What do you think is the biggest weakness in GCC’s financial sector? The GCC financial sector is well regulated and robust. Following a period of strong growth, regional economies are coping with a slowdown. Naturally, the financial sector is re-calibrating for the challenges and opportunities ahead.
What is your outlook on the region’s financial market and how does this compare on a global scale? I think the Saudi market has entered an exciting stage in its evolution ahead of emerging markets status. Regulations are moving to incentivise more corporates to list and institutional investors to gain confidence. Being the largest regional market, Saudi boasts quality companies that are weighed against global peers by international investors. Focus is turning to uncover some of these hidden gems. Interestingly, market correlation with oil is weakening as the economy diversifies. Undoubtedly, during the transition there will be winners and losers.
How would you like to leave a legacy? I am a strong believer in the quality of output. This is something our clients, peers and competitors recognise. I would like to be remembered for original, thought-provoking research. Second, I take great satisfaction from grooming young talent. Headcount retention is a universal challenge, however I take pride when one of my team members Asim Bukhtiar goes on to take bigger roles.
www.bankerme.com
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