April 2024

Duty Calls Duty Calls

George Hojeige Group CEO, Virtugroup

Banking innovation meets traditional values

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Thermal Uplift

AHot Spring most commonly brings to mind thoughts or images of geothermal features in parts of the world where groundwater is heated by a sub-surface volcanic presence. For many of us in the region, it also means that the weather is starting its annual, determined migration to the higher reaches of the thermometer. In the April 2024 edition of MEA Finance magazine, the term reflects the heat generating momentum of the region’s rising economic development, as exemplified by the increasing presence of technology, newly inaugurated requirements for doing business and the expanding markets and choices in banking and investment.

Our Market Focus this month is on Oman, where the under their Vision 2040 blueprint, progress implementing structural reforms has continued and the country is expected to register MENA’s highest growth this year. Read how and why their economy is heating up from page 10.

The temperature rises with a look into the effects of the inevitable application of AI in banking across the region. “AI demands a concerted effort towards ethical development and deployment to realise its beneficial potential,” notes Liaquat Parkar, Executive Partner for Banking at IBM MEA. Maintaining the direction toward the unavoidable, on page 28, Swift’s Nick Kerigan, their Managing Director and Head of Innovation looks at the importance of the interoperability of CBDCs in their development.

The heat grows as another undodgeable reality is fully examined in our cover story, featuring Geroge Hojeige, Group CEO, Virtugroup. From page 30, he guides us through pressing questions and key facts about Corporate Tax in the UAE, for example, “It is

important to note, however, that a free zone business is not automatically exempt from corporate tax”, says George.

The Open Banking and Beyond Summit organised by MEA Finance, in partnership with GSS Tech Group was very warmly welcomed by a large audience of delegates from across the banking sector. Opened by Mr. Jamal Saleh, Director General of the UAEBF and with a keynote address made by Mr. Suhail Bin Tarraf, Group Chief Operating Officer at First Abu Dhabi Bank, this special occasion, attended by speakers at the highest-level, broached the development of Open Banking in the region and how it will soon be transforming our daily transactions and regional economies – pages 46 to 55.

The thermostat remains set at high as we report on fervent action in regions capital markets with our looks at both DCM and M&A in this issue. “The GCC & MENA has witnessed a healthy 4% increase in M&A activity,” says Vijay Valecha, Chief Investment Officer, Century Financial. And with the GCC’s debt markets gearing up for positive performance, Deepak Mehra, Commercial Bank of Dubai’s Chief Economist tell us that in ‘just two and a half months in 2024 new issuances within the GCC stand at $38.38 billion”.

Also in this edition, the growth that brings more options to us for preferred styles of banking and investment are underlined by our pieces on Islamic Banking from Standard Chartered and Islamic Asset Management from Apex Group. Then examining aspects of the ongoing advent of technology in banking, Amol Bahuguna and Adil Belhouari, explain how they have seen the application of technology in the sector has changed the landscape, and elsewhere, Amjad Ramahi, Senior Solutions Engineer and Jarno van Hurne, VP Product, Business Banking, at Backbase discuss the redefinition of SME Banking.

So, get out of the kitchen, switch on the aircon and cool down with this, your latest, hot off the press issue of MEA Finance.

Qatar Islamic Bank launches

FAWRAN instant payment service

The instant payments service offers a rapid and secure electronic payment solution, accessible 24/7

Qatar Islamic Bank (QIB) has launched the instant payment service “FAWRAN” on the QIB Mobile app. The real-time payments platform, which is backed by the Qatar Central Bank (QCB), facilitates instant transactions nationwide.

FAWRAN streamlines the payment and transfer process for new and existing customers. It uses alternative identifiers for account details, empowering customers to instantly send and receive

funds without the need for inputting traditional beneficiary details making the process fast and easy.

“FAWRAN is a new approach to instant local transactions in Qatar. The service provides a seamless, fast, convenient and secure transfer process by creating an account name as an alternative identifier for the bank account, which allows customers to transfer money instantly within Qatar,” said Dorai Anand, QIB’s General Manager – Personal Banking Group.

The instant payments service offers a rapid and secure electronic payment solution, accessible 24/7.

Customers can make local transfers through “FAWRAN” without the need to enter the details of the beneficiary’s bank account.

The payment system ensures security, safety and speed throughout the local transfer process, crediting the beneficiary’s account within seconds. The service allows customers to transfer up to QAR 50,000 per transaction.

It will also offer customers the option to manage the linkage of Alias names to their desired accounts and track their transactions through its payment history.

The launch of “FAWRAN” reflects the efforts of QCB to develop the country’s payment systems infrastructure and keep pace with the latest global developments in payment systems and electronic fund transfer.

UPI-powered PhonePe App is now accepted at Mashreq’s NEOPAY terminals in UAE

PhonePe App users will now be able to use their preferred App in UAE at NEOPAY terminals

Mashreq in partnership with NPCI International Payments Ltd. (NIPL), has taken a significant step forward in enhancing financial connectivity between the UAE and India. Unified Payments Interface (UPI) – enabled apps such as PhonePe will now be integrated with NEOPAY, Mashreq’s payment platform, facilitating seamless payment solutions for Indian tourists across multiple merchant locations in the UAE.

Indian customers travelling to UAE, as well as NRIs with Indian bank accounts can enhance their payment convenience by downloading their preferred UPIenabled app. Once installed, the app allows users to make payments at NEOPAY terminals. These terminals –conveniently located across multiple

avenues in the UAE, including retail stores, dining outlets and key tourist and leisure destinations – generate a QR code that can be scanned to facilitate easy and quick payments. These payments will be enabled by UPI, the instant, realtime payment system developed by the National Payment Corporation of India (NPCI) to facilitate inter-bank transactions through mobile phones. All transactions are processed in Indian Rupees (INR), offering transparency and convenience for Indian tourists.

Vibhor Mundhada, CEO of NEOPAY at Mashreq said: “We are delighted to collaborate with PhonePe to offer yet another new payment solution for Indian tourists and visitors in the UAE, helping further cement the already strong financial relations between the two

countries. This latest launch underscores our commitment to incorporating innovation and technology into our operations and to providing the solutions and experiences our customers want and need.”

Ritesh Pai, CEO International Payments at PhonePe said: ‘’We are thrilled to announce our partnership with Mashreq. UAE is a very popular destination, with millions of Indian visitors every year. With this partnership customers can now conveniently transact through UPI, a payment method they are familiar with. Enabling digital payments not only reflects PhonePe’s commitment to convenience but also embraces the evolving needs of today’s travellers. This collaboration opens doors to seamless transactions, ensuring a smoother and more enjoyable journey for visitors.’

Anubhav Sharma, Deputy Chief –Partnership Business Development & Marketing, NIPL said, “We aim to actively collaborate with financial institutions around the world, fostering partnerships to deliver convenient and secure crossborder payment solutions for consumers. This partnership encourages fintech collaboration and unifies the ecosystem to streamline payment processes for Indian travellers to UAE.”

PhonePe is India’s largest digital payments company with over 515 million registered users. This collaboration will simplify payment transactions for Indians in the UAE who are among the top visitors to the Gulf country, with 2.46 million tourists having visited Dubai in 2023, thus strengthening UAE’s financial ties with India.

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Turning Vision to Reality

Oman’s economic recovery is continuing, and the Sultanate is expected to register MENA’s highest growth in 2024 on the back of expected high oil output and strong non-oil growth

Oman held celebrations on 11 January to commemorate the fourth anniversary of Sultan Haitham bin Tariq Al Said’s ascension to the throne as the country’s economic recovery is continuing.

The International Monetary Fund (IMF) projected that GDP growth will recover to 2.7% in 2024, buoyed by higher hydrocarbon output and strong non-oil growth.

“The economic outlook remains favourable. While GDP growth slowed down due to OPEC+-related oil production cuts in 2023, it is set to rebound in 2024, supported by higher hydrocarbon production and stronger non-hydrocarbon growth,” the IMF said in a report last November.

The Sultanate has one of the weakest credits and is more sensitive to volatility in energy prices compared to its neighbours in the Arabian region. However, over the past four years, Sultan Haitham has moved to balance the Gulf state’s finances while preparing it for a time after oil.

Oman’s improved fiscal performance and lower public debt caught the attention of the world’s major rating agencies - Fitch Ratings, Moody’s and S&P Global – who upgraded the country’s ratings as well as their outlooks, citing strong economic growth prospects.

Under Oman’s Vision 2040 economic blueprint, the government has made

significant strides in implementing structural reforms to boost the country’s non-oil economy, drive diversification and spur long-term sustainable growth.

“The structural reform agenda under Vision 2040 is progressing, with numerous reforms under the implementation stage to foster Oman’s inclusive growth, enhance job creation and bolster resilience,” said the IMF.

The reforms include cutting subsidies, restructuring government and state entities, introducing a value-added tax and even planning for income tax, which is expected to be the first for a Gulf Arab state.

The improvements in fiscal performance as well as the government’s deleveraging and commitment to reform could enable the Sultanate to regain its investment-grade rating this year, according to Standard Chartered’s Global Focus 2024 report.

State of economy

GCC countries are poised to effectively navigate through a decelerating global economy, aided by a projected loosening

of OPEC+ oil production quotas, relatively strong growth in key Asian markets and continued government investments in line with National Visions such as Oman’s Vision 2040.

The Sultanate’s economic recovery is continuing, and the Gulf state is expected to register MENA’s highest growth in 2024 on the back of expected high oil output and strong non-oil growth.

“Favorable oil prices and continued fiscal reforms are expected to maintain fiscal and external balances in comfortable positions over the medium term,” according to Paris-based Allianz Trade.

With projections for global benchmark Brent in 2024 from five major banks averaging about $85 a barrel and oil demand widely expected to grow further from 2023’s record levels, Sultan Haitham ratified his country’s 2024 budget with a deficit of $1.66 billion (OMR 640 million) or 6% of total revenue and 1.5% of GDP.

“The 2024 budget represents the first plan of Oman Vision 2040 that aims to achieve financial sustainability while stimulating economic sector diversification,” said KPMG.

The government in Muscat said it would tap both domestic and international markets for OMR 240 million to help plug the gap. The remaining OMR 400 million will be covered through drawing on reserves.

Oman is forecasting public revenues of $28.6 billion (OMR 11.01 billion) in 2024, a 9.5% increase compared to the previous year while expenditure is estimated at OMR 11.7 billion, up by 2.6% compared to the 2023 budget – with

THE STRUCTURAL REFORM AGENDA UNDER VISION 2040 IS PROGRESSING, WITH NUMEROUS REFORMS UNDER THE IMPLEMENTATION STAGE TO FOSTER OMAN’S INCLUSIVE GROWTH, ENHANCE JOB CREATION AND BOLSTER RESILIENCE

– The International Monetary Fund

a focus on basic public services and stimulating investment.

Oil revenues in 2024 are projected at around OMR 5.92 billion, which is 54% of total public revenue, OMR 1.57 billion in net gas revenues and approximately OMR 3.5 billion in non-oil revenues. The budget is based on an oil price of $60 a barrel.

The Gulf state, a member of OPEC+, plans to pump 1.03 million barrels per day (bpd) down from 1.18 million bpd a year ago. Its credit rating was upgraded by Moody’s to Ba1, BB+ by Fitch Ratings and BB+ by S&P Global as the windfall from hydrocarbon revenues has helped ease financing pressures while improving debt affordability.

Fitch Ratings said the Sultanate’s budget, published in early January, indicates that the authorities will continue to pay down government debt, strengthening the sovereign’s resilience to potential shocks, but increasing social spending will slow the pace of debt reduction in 2024

Oman’s 2024 budget marks the fourth year of the Tenth Five-Year Development

FAVORABLE OIL PRICES AND CONTINUED FISCAL REFORMS ARE EXPECTED TO MAINTAIN FISCAL AND EXTERNAL BALANCES IN COMFORTABLE POSITIONS OVER THE MEDIUM TERM

Plan (2021-2025), which paves the way for the implementation of Vision 2040 development objectives. The country unveiled a medium-term fiscal programme in 2020 to reduce public debt, diversify revenue sources and drive economic growth.

Towards Vision 2040

Oman has made substantial progress in implementing Vision 2040. However, more remains to be done to reduce the Sultanate’s reliance on hydrocarbons and bolster prospects for nonhydrocarbon growth.

Under Sultan Haitham, Oman is introducing reforms to prepare the country for a time after oil. The Gulf state has implemented a series of reforms as part of a broader strategy to balance the budget, reduce debt and bolster public finances, including the introduction of VAT, cutting subsidies and restructuring government-owned entities.

“Efforts to create a more enabling business environment are ongoing, including from the reform of state-owned enterprises under Oman Investment Authority (OIA),” the IMF said in January.

“The climate agenda is progressing through ample investments in renewable energy and hydrogen, guided by the authorities’ National Strategy for an Orderly Transition to Net Zero.”

OIA, which manages funds on behalf of the Sultanate, is developing the country’s targeted economic sectors by implementing large projects in partnership with the private sector.

Oman is forecasting revenues of OMR 800 million from the wealth fund, according to the country’s 2024 budget.

The state investor launched an OMR 2 billion fund to drive investments in local SMEs and attract foreign investment over the next five years. The Future Fund Oman will invest in eight strategic sectors including tourism, manufacturing, green energy, information and communication technologies, ports and logistics, mining, fisheries and agriculture.

Oman divided OIA into two units overseeing local and foreign assets. The ‘Generation Portfolio’, which consists of foreign assets and some local assets in various instruments, including public and private markets and real estate portfolios, aims to achieve the greatest returns for future generations.

The other unit, the National Development Portfolio, which has stakes in more than 160 companies and manages local assets, will help support Oman’s general budget through dividend distributions. This second unit looks to attract private sector investors and many private firms.

The wealth fund manages $47 billion in assets across more than 50 countries, according to its 2022 annual report, as it increases its holdings in real estate, technology and logistics. Its holding companies include OQ Group, Oman LNG, Minerals Development Oman and Oman Airports.

Oman started levying a delayed 5% VAT in April 2021 – the fourth Gulf state to do so. The FY2024 budget estimates VAT and excise tax revenues of OMR 645 million and about OMR 630 million from corporate income tax.

VAT is aimed at ensuring Oman’s financial sustainability after the country accumulated huge amounts of debt over the past few years to compensate for its dwindling oil revenues. Trimming public debt and restructuring public institutions and companies is one of a series of steps taken to advance Oman’s fiscal efficiency after sensitive reforms had lagged for years.

Over the past two years, Sultan Haitham reinstated finance and foreign

affairs ministers as well as central bank chairman – portfolios that were abolished by the late Sultan Qaboos in 2011.

The Sultanate also plans to expand its visa-fee exemption to more than 100 countries to boost its tourism industry. The authorities are considering a new investment residency program as part of its wide-ranging reforms to fix its finances.

Sustaining economic diversification momentum calls for further efforts to reduce the state footprint, enhance the business environment and accelerate green investments, which in turn could help bolster financial development reforms.

Banking sector

Oman’s banking sector experienced a landmark year in 2023 and remains on a strong footing. Banks in the Sultanate, like their GCC peers, continue to benefit from significant noninterest-bearing

move to tighten monetary policy.

The combined profits of Omani banks listed on the Muscat Stock Exchange jumped 18.6% to OMR 453.5 million in 2023 while total assets surged by 14.9% to OMR 38.8 billion, according to the staterun Oman News Agency.

Bank Muscat topped the list with OMR 212.4 million, up from OMR 200.7 million in 2022, Sohar International’s annual profit reached OMR 70.3 million in 2023, up from OMR 34.9 million a year earlier while National Bank of Oman posted OMR 58 million in net profit.

Meanwhile, banks in Oman have been consolidating to improve economies of scale, reduce operating and funding costs as well as boost profitability and efficiency.

Sohar International Bank merged with HSBC Bank Oman last August into a banking behemoth with more than OMR 6.7 billion in assets as of December 2023.

WHILE GDP GROWTH SLOWED DOWN DUE TO OPEC+-RELATED OIL PRODUCTION CUTS IN 2023, IT IS SET TO REBOUND IN 2024, SUPPORTED BY HIGHER HYDROCARBON PRODUCTION AND STRONGER NONHYDROCARBON GROWTH

– The International Monetary Fund

deposits, and despite some migration to time deposits, margins continued to strengthen over 2023.

“Profitability has recovered to prepandemic levels, capital and liquidity ratios are well above regulatory requirements, and non-performing loans remain low and sufficiently provisioned,” according to the IMF.

Banks in the Gulf state registered record profits in 2023 on the back of improved operating conditions marked by economic recovery and the central banks’

Sohar International is also linked with a potential merger with Omani Islamic lender Bank Nizwa.

Oman’s outlook remains favourable. Going forward, growth would be supported by higher oil prices, an acceleration of structural reforms under Vision 2040 and investments from the Sultanate’s oil-rich GCC neighbours. Foreign direct investment flows into Oman rose 8.2% in 2022 from the previous year to a record $70.5 billion (OMR 27.1 billion), according to the country’s statistics authority.

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Assuredly Inevitable

GenAI holds the potential to transform the financial services landscape radically, setting new standards for customer experience and engagement, as well as upsides in productivity and cost savings

Generative AI (GenAI), a subset of deep learning technology or traditional artificial intelligence (AI), became a buzzword in 2023, setting the financial services industry on a path to experimentation while sparking discussions around the promise and future of AI in the banking sector.

“The banking industry is highly digitalised, data-driven and its staffing costs are high. All these factors position it well for broad efficiency gains from artificial intelligence,” said Moody’s.

The emergence of AI has disrupted the physics of the banking industry, weakening the bonds that have held together the components of incumbents and opening the door to more innovations and new operating models.

Industry experts say the innovative technology can help banks reduce costs and increase profitability, maintain a

competitive edge in a rapidly changing financial ecosystem and improve operational efficiency across front-toback-office functions.

S&P Global said, in October 2023, that banks have been leveraging AI for decades to advance risk management processes, loss mitigation, fraud prevention and customer retention as well as to deliver efficiency gains and profit growth.

For the same reasons, it is not surprising that global banks are now poised to take further steps in integrating more powerful GenAI technology into their operations. Though many banks have been using predictive AI for decades now, GenAI is expected to complement these traditional strategies while allowing banks to build upon existing success.

With the public release of OpenAI’s ChatGPT more than 16 months ago, GenAI could breed innovation while

paving the way for new business models and applications.

“While tools like ChatGPT are trained on generic data, companies are now creating generative AI systems designed for specific verticals and datasets,” according to J.P. Morgan.

AI is reshaping banking as banks shift from being reactive to proactively serving customer needs. GCC banks face crucial decisions as technology is shifting customer expectations and changing the regulatory landscape.

Embracing digital innovation

Over the decades, banking practices have not changed. The industry’s fundamentals still consist of taking in deposits, lending money and managing payments, but GenAI is expected to significantly revamp how that work gets done.

“AI and automation are not new to banking. But large language models (LLMs) such as OpenAI’s ChatGPT or Google’s Gemini could help automate many tasks, from generating marketing products to coding,” according to Deloitte.

The global accounting firm said leveraging GenAI could help banks free up resources to spark innovation and enable employees to focus more on productively interacting with clients.

McKinsey projected that banking and the wider financial services sector is poised to benefit from savings arising

from GenAI to the tune of $200 billion to $340 billion annually - largely from increased productivity.

“The economic impact will likely benefit all banking segments and functions, with the greatest absolute gains in the corporate and retail sectors expected to reach $56 billion and $54 billion, respectively,” the global consulting firm said in a report last December.

UAE’s Emirates NBD partnered with Microsoft in July to harness the power of GenAI to advance the banking group’s operations and productivity across various business functions. The bank said the collaboration seeks to unlock new opportunities for innovation, efficiency and customer experience within the banking industry.

Globally, Goldman Sachs announced in March that it was using GenAI solutions and tools to aid its software developers in writing and testing code while J.P. Morgan is also developing a ChatGPT-like software service that leans on a disruptive form of AI to select investments for customers.

GenAI holds the potential to transform the financial services landscape radically, setting a new standard for customer experience and engagement.

“Banks are adopting generative AI, which promises earnings growth, improvements to decision-making, and better risk management,” said S&P Global.

Similarly, the LLM capabilities at the core of GenAI can aid both digital assistants and customer service advisors with increased levels of insight relating to individual customers’ requirements and the banking services that would best meet their needs.

TRADITIONAL AI AND PREDICTIVE ANALYTICS WILL DECIDE ON THE PROMPTS AND THE MESSAGES TO DELIVER TO THE CUSTOMER WHILE GENAI WILL DELIVER THOSE PROMPTS AND MESSAGES IN A NONINTRUSIVE, HUMAN-LIKE AND PERSONALISED MANNER

– BCG

For GCC banks that possess the right strategy, talent and technology, GenAI can create ‘focused financial offerings’ for individuals within retail and private banking channels and for corporate banking tailored to their specific needs and interests is a differentiator that can drive new forms of competitive advantage.

A new era of customer experience

GenAI is revolutionary. The most immediate impact that this innovative technology is expected to have on banks, much like digital transformation before it, is further advancing customer experience and personalised product offerings.

Banks have several avenues to advance customer experience such as effective self-serve options and personalised customer journeys using data and analytics. However, the use of AI in the financial services industry can drive true end-to-end digital transformation.

Over the years, all customerfacing channels, whether in retail banking or corporate banking have introduced digital banking services to

BANKS ARE ADOPTING GENERATIVE AI, WHICH PROMISES EARNINGS GROWTH, IMPROVEMENTS TO DECISION-MAKING, AND BETTER RISK MANAGEMENT

meet customers’ evolving demands. Considering that most of these experiences still require the involvement of a banking representative, the adoption of GenAI in the banking sector is poised to create highly personalised experiences.

British consultancy firm Pierre Audoin Consultants (PAC) said banks can leverage GenAI service in combination with conversational AI solutions to deliver new or augment existing chatbot or virtual assistant interfaces.

The use of AI will allow banks to transition from reacting to queries to proactively solving problems, thereby improving the customer experience even more. Hyper customisation is a big trend within the banking sector as customers are looking for a personalised, tailored service rather than a one-size-fits-all approach.

“Traditional AI and predictive analytics will decide on the prompts and the messages to deliver to the customer while GenAI will deliver those prompts and messages in a nonintrusive, humanlike and personalised manner,” according to BCG.

Last August, the International Monetary Fund (IMF) said GenAI’s ability to process very large and diverse data sets is proving very useful in enhancing efficiency and advancing customer experience, risk mitigation and compliance reporting for financial providers.

The ‘gold mine’ of customer data that incumbents have accumulated over the years is a key value differentiator that is unlocked by the potential of GenAI.

The depth and breadth of data a bank has on customers, as individuals and groups with common preferences, allows them to create recommendations for bespoke financial products to an individual’s specific needs at a far greater scale through digital services than has been previously possible.

“GenAI can deliver personalised banking services through digital engagements via online portals or mobile apps or as an invaluable advisory tool to support front-office bank employees in customer interactions,” according to McKinsey.

Financial institutions have unique issues that require unique solutions. AI has established benefits for the financial services industry, especially when it comes to improving customer service. The transformative technology allows banks to identify actionable insights by analysing customer data and providing personalised services.

Risk management & GenAI

While GenAI holds the potential to revolutionise banking processes, streamline decision-making and augment customer experiences, most of the current deployments are limited to just a few banking areas or don’t go beyond the experimental phase.

The launch of ChatGPT generated concerns over the potential risks that GenAI poses. Though the adoption of AI technology in the banking industry has brought significant benefits,

GENAI CAN DELIVER PERSONALISED BANKING SERVICES THROUGH DIGITAL ENGAGEMENTS VIA ONLINE PORTALS OR MOBILE APPS OR AS AN INVALUABLE ADVISORY TOOL TO SUPPORT FRONTOFFICE BANK EMPLOYEES IN CUSTOMER INTERACTIONS

– McKinsey

there are potential pitfalls that should be considered.

EY said early adopters of GenAI face increased risks ranging from lawsuits arising from the use of web-based copyrighted material in AI outputs to concerns about bias to threats to data privacy and cybersecurity.

Earlier in 2023, major financial institutions reportedly restricted their employees from using ChatGPT.

The ban, which was initially imposed by multinational banks including Bank of America, Citigroup, Deutsche Bank, Wells Fargo and Goldman Sachs, was not a result of any particular incident but rather due to concerns about potential regulatory risks surrounding the sharing of sensitive financial information with OpenAI’s chatbot.

The biggest of the concerns voiced by financial institutions and banks is that these advanced technologies make it

THE ECONOMIC IMPACT WILL LIKELY BENEFIT ALL BANKING SEGMENTS AND FUNCTIONS, WITH THE GREATEST ABSOLUTE GAINS IN THE CORPORATE AND RETAIL SECTORS EXPECTED TO REACH $56 BILLION AND $54 BILLION, RESPECTIVELY

– McKinsey

much easier – and harder to detect – for financial criminals to engage in money laundering, terrorism financing and fraud.

The Association of Certified Fraud Examiners said as more sophisticated versions of GenAI and ChatGPT evolve, bankers and compliance professionals can expect to see instances of more persuasive phishing emails or more convincing impersonators scamming for information.

The solution to financial crime concerns is for banks and financial institutions to implement robust cybersecurity measures to protect AI systems from hacking attempts, data breaches and unauthorised access.

However, AI offers a vast advantage in risk management as it can analyse large amounts of data to detect any unusual patterns and identify possible fraud while greatly increasing monitoring teams’ efficiency and effectiveness.

Earlier in March, the European Central Bank identified more than 40 use cases for Gen AI in banking supervision, which highlights the innovative technology’s potential to make day-to-day supervision easier.

Since the release of ChatGPT in November 2022, GenAI tools and processes have been making inroads into the financial services industry at a progressively quickened pace. The cutting-edge technology is revolutionising banking workflows, enabling automation, and providing valuable insights to financial institutions.

Facing the Future

Liaquat Parkar Executive Partner, Banking, IBM MEA answers questions about the role of AI in Banking and addresses key points of concern to the market as we are all pulled toward the adoption of and interaction with the coming realities of AI

From a banker’s perspective, what are the main drivers for the adoption of Generative AI?

Generative AI stands as a transformative force shaping the future of banking operations, particularly in regions like the Middle East where innovation is paramount.

According to the IBM Global AI Adoption Index 2023, 34% of UAE companies have a comprehensive AI strategy in place, while an additional 30% are in the process of developing one. The integration of AI is not just a competitive edge but a necessity in today’s digital landscape.

By harnessing generative AI, banks witness significant improvements in productivity and a reduction in the ‘Cost Income’ ratio across all its businesses, particularly in areas with people-intensive activities such as Know Your Customer (KYC), complaints management and customer care.

This transformative technology also helps redefine communication. Our clients are leveraging generative AI to drive up ‘first point of contact’ resolution percentages substantially, while also reducing live call volumes and durations in call centers.

Generative AI plays key roles in optimising operations, enabling informed decision-making, ensuring compliance and responding swiftly to market dynamics

across various functional domains such as IT, HR, finance and marketing.

Notably, the integration of AI not only delivers cost efficiencies but also minimises environmental impact, aligning with the growing emphasis on sustainability within the banking sector.

In what ways will AI bring about definitively improved customer experiences across banking and finance?

AI is unleashing a new approach for customer experience strategy, design and development in the banking sector.

Firstly, AI enables banks and financial firms to personalise services tailored to the individual preferences of their clients, such as customised investment advice, loan offers and financial management tools.

Automated chatbots powered by Natural Language Processing (NLP) ensure round-the-clock customer support, responding promptly to basic queries and freeing up human representatives to handle complex issues. The key is designing the AI solutions to augment people -- AI can promote meaningful connections between bank staff and clients by providing bank agents with quick access to customer insights and facilitating personalised advice.

Furthermore, AI’s role in fraud detection is critical. Advanced algorithms and machine learning systems can spot fraudulent behaviour and anomalies in real-time, safeguarding customers against cyber threats or monetary loss.

Lastly, by automating manual activities like document validation, loan applications and account opening, AI can streamline internal procedures and cut wait times for consumers, minimising errors and increasing accuracy.

Will use of AI overcome fraud risk, or is it more probable a continuing technological arms race will ensue with bad actors?

While generative artificial intelligence (AI) is becoming a top technology investment area, many organisations are unprepared to cope with the cybersecurity risks associated with it. Therefore, combating fraud requires a proactive and multifaceted approach, combining AI with ongoing investments in cutting-edge anti-fraud solutions and vigilant monitoring.

AI offers several strategies to reduce fraud risk effectively.

Liaquat Parkar, Executive Partner, Banking, IBM MEA

Anomaly detection algorithms can identify unusual behaviour patterns indicative of potential fraud, while machine learning analyses vast datasets to uncover patterns and trends associated with fraudulent activities. Real-time monitoring enables swift detection and prevention of fraudulent transactions, while predictive analytics assess the likelihood of fraudulent activity based on historical data and other factors. Additionally, AI can enhance identity verification processes, reducing the risk of fraudulent transactions.

However, it’s crucial to acknowledge that AI alone cannot entirely eliminate fraud risk. As fraudsters evolve their tactics, organisations must remain proactive in adapting their fraud prevention strategies accordingly. By combining AI with advanced security measures, organisations can stay ahead in the ongoing battle against fraud.

How do wealth and asset managers expect AI to affect the way their services perform and are performed?

As wealth and asset managers look to the future, it’s clear that AI will play a pivotal role in reshaping their services and operations.

Firstly, AI promises to revolutionise efficiency by automating repetitive and tedious tasks such as data entry and portfolio rebalancing. By freeing up valuable time, managers can redirect their focus towards more strategic endeavours like investment research and client relationship management.

Secondly, enhanced analytics powered by AI will provide managers with unprecedented insights into market trends, investment patterns and client behaviour. This newfound understanding will enable more informed decision-making and the creation of personalised investment strategies tailored to individual client needs. Risk assessment tools further enhance the client experience by reducing potential risks in investment portfolios.

With this, clients can expect a more customised and proactive approach to wealth management.

Thirdly, Generative AI provides realtime assistance for industry, site or asset safety and regulatory compliance. AI models that use published safety guidelines, regulations, regulatory filings, rulings and internal data sources significantly improve the speed, accuracy and success rate of regulatory filings for planners and technicians.

Firstly, there’s a critical need to ensure that AI systems are trained on diverse and representative datasets. By incorporating varied data sources, the risk of bias and discrimination can be minimised, thereby fostering inclusivity in AI-driven decisionmaking processes.

Transparency and explainability are equally essential aspects in fostering trust and acceptance of AI systems among customers. Banks should prioritise creating AI systems that

AI DEMANDS A CONCERTED EFFORT TOWARDS ETHICAL DEVELOPMENT AND DEPLOYMENT TO REALISE ITS BENEFICIAL POTENTIAL

Lastly, AI’s role in ensuring compliance and regulatory efficiency cannot be overstated. By automating compliance checks, transaction monitoring, and risk identification, AI empowers managers to navigate complex regulatory landscapes with greater ease and accuracy.

IBM’s strong partnerships in the region’s financial services sector are testament to the revolutionary power of hybrid cloud and AI technologies. Regional banks including First Abu Dhabi Bank, Qatar National Bank, Al Rajhi Capital, Alinma Bank and Dubai Islamic Bank are accelerating their digital and data transformation journeys by integrating hybrid cloud and AI capabilities to drive cost efficiency, increase productivity and create opportunities for innovation.

Can AI truly meet its beneficial inclusivity potential in commercial structures demanding profits and growth?

AI demands a concerted effort towards ethical development and deployment to realise its beneficial potential.

are transparent and understandable, enabling customers to comprehend how decisions are made. This transparency fosters trust and encourages broader acceptance and utilisation of AI-driven solutions.

Moreover, ethical considerations must be at the forefront of AI deployment strategies. One key way to ensure this is by establishing an AI Ethics Board with various stakeholders from across the business to consider the impact of AI solutions and potential privacy concerns, potential effects on employment, and other ethical implications.

Accessibility is another critical aspect to consider in promoting inclusivity through AI. By enhancing accessibility features such as voice commands and text-to-speech functionality, banks can ensure that their AI systems are accessible to everyone, including individuals with disabilities.

By prioritising ethical AI practices, businesses can leverage AI to not only drive profits and growth but also foster a more inclusive environment for all stakeholders.

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Distinguishing Qualities

The GCC’s debt markets strike a positive stance in the current global environment, with high levels of support for start-ups and robust Sukuk issuance as examples of regional traits contributing to positive performance

The economies of GCC countries will grow at a faster pace in 2024 than last year, despite expectations of weak global growth, driven by non-oil growth momentum and increased domestic demand and capital inflows. The World Bank projected that the Gulf region would grow by 3.6 and 3.7% in 2024 and 2025, respectively.

A challenging economic outlook, geopolitical pressures coupled with supply chain disruptions, high-interest rates and soaring inflation continued to impact debt capital markets in 2023.

Economists classify interest rate increases as one of the major tools central banks use to fight inflation.

Central banks in the GCC region, including Qatar and the UAE, followed the US Federal Reserve’s decision to keep interest rates unchanged to protect their currencies’ peg against the dollar.

Though high interest rates have several ramifications on market conditions including scaring off investors and borrowers, global debt markets remained resilient in 2023 as issuers adjusted to the prolonged highinterest-rate environment.

PwC projected that global debt capital market activity will remain resilient in the face of an elevated cost of capital.

Meanwhile, debt capital markets remain an important source of funding for issuers across the world, connecting

them to the international investor base, in the face of high inflation and global uncertainty.

The global debt capital markets activity in 2023 reached $8.9 trillion, a 6% increase from a year ago, the London Stock Exchange Group said in February. The Federal Reserve and the European Central Bank look set to make “major progress” in cutting interest rates in 2024, according to the Bank for International Settlements.

The transition from a peak rate environment to a cutting cycle is supportive of interest rates but challenging for risk assets, including commodities. However, with the expectation that the Federal Reserve may hold rates higher for longer, Franklin Templeton analysts believe pressure on consumers, companies and governments will continue to increase – particularly those with weaker financial profiles.

Growing investor interest

Alternative investing options, which include private equity, are an attractive way for individuals to diversify their portfolios during periods of economic uncertainty.

However, private equity investors and dealmakers faced considerable uncertainty heading into 2023 following a challenging 2022.

Global private equity fundraising fell 11.5% year-on-year (YoY) by aggregate value in 2023, the lowest total since 2017, while the 1,936 funds closed was the smallest annual number since at least 2015, according to Preqin data.

While the increase in interest rates has particularly hit global capital markets the hardest, it could be a boon for GCC countries given how they have remained resilient relative to other emerging markets economies amid mounting uncertainties.

“The GCC has seen an unprecedented level of support and funding for startups, particularly in the technology sector, despite drying venture capital funding globally,” Hammad Younas, Chief Investment Officer at GFH Financial Group said in a blog post.

“Governments and private investors have recognised the potential of emerging technologies and new economies, fostering an ecosystem that nurtures innovation and entrepreneurial ventures,” added Younas.

As their money becomes more vital, GCC sovereign wealth funds are encouraging private equity firms to invest locally in plans for a post-oil future. To capture the flurry of activity – as deals dry up in other parts of the world – bank and private equity firms including Brookfield, CVC and Ardian have opened shop in the region.

Dubai-based data platform MAGNiTT said investment in Saudi startups surged

GLOBAL PRIVATE

EQUITY FUNDRAISING

FELL 11.5% YEAR-ON-YEAR BY AGGREGATE VALUE IN 2023, THE LOWEST TOTAL SINCE 2017, WHILE THE 1,936 FUNDS CLOSED WAS THE SMALLEST ANNUAL NUMBER SINCE AT LEAST 2015

– Preqin

by 33% YoY to $1.4 billion in 2023, driven by sovereign funds such as SVC, Jada and Sanabil as well as the government’s focus on innovation and dedicated unicorn projects.

Funding for startups at in5 Dubai also surged by 25% in 2023 to reach AED 3 billion and the platform has incubated as many as 900 startups since its inception.

Furthermore, Qatar Investment Fund said, in February, that it plans to deploy more than $1 billion in international and regional capital funds as part of a broader strategy to develop the Gulf state’s venture capital and startup market.

The GCC is expecting a boom in startups and small to medium enterprises, with 45 unicorns worth an estimated $100 billion expected to emerge from the region by 2030. Careem, HungerStation, Noon, Jahez and Kitopi are some of the region’s success stories.

Looking at the big picture

With as much as $45 billion of GCC debt maturing in 2023, refinancing of these instruments is expected to account for the bulk of the bond issuances by

DIGITALISATION COULD UNLOCK SOME OPPORTUNITIES AS IT COULD STREAMLINE SUKUK ISSUANCE. YET, THIS WOULD REQUIRE THE HARMONISATION OF LEGAL DOCUMENTS AND A STANDARDISED INTERPRETATION OF THE SHARIAH

– S&P Global

corporates and governments in the region this year, according to Kuwait fund manager Kamco Invest.

GCC states remain resilient relative to other emerging market economies making the oil-rich region a rare bright spot amid mounting global uncertainties.

Bond issuances in the Middle East reached $95.9 billion in 2023 compared to $80.6 billion a year ago, driven by higher issuances by corporates that more than offset a decline in issuances by sovereigns.

Kamco Invest said debt issuances by GCC sovereigns stood at $58.2 billion in 2023, a 44.2% or $17.8 billion increase from $40.4 billion a year earlier. The surge in bond issuance in the Gulf Arab region last year was driven by GCC corporates and sovereigns in 2023, which helped to offset an overall decline in issuances in non-GCC MENA countries during the year.

Debt issuance is already showing signs of acceleration in 2024. Fiscal deficits by some GCC countries, including Saudi Arabia and Oman, are expected to drive debt issuance in the region this year.

Saudi Arabia projected a fiscal deficit of $21.9 billion (SAR82 billion) or 2% of GDP in 2024. The kingdom plans to tap international and local debt markets to fill state coffers. Earlier in January, the Gulf state’s National Debt Management Centre sold $12 billion of bonds – its largest deal since 2017.

Similarly, Oman forecasted a deficit of $1.66 billion (OMR 640 million) or 6% of total revenue and 1.5% of GDP. The Sultanate plans to approach both the domestic and international debt markets for OMR 240 million to help plug the gap.

Franklin Templeton projected that Saudi Arabia would see maturities of $125 billion until 2027, followed by UAE and Qatari issuers at $109.8 billion and $73.1 billion, respectively. GCC governments are expected to see elevated levels of maturity over the next five years.

“GCC sovereign maturities stand at $209.3 billion over the next five years (2024-2028), while corporate maturities stand significantly lower at $177.9 billion,” said Kamco Invest.

Saudi Arabia’s Public Investment Fund raised $5 billion of high-grade bonds in January, amid growing investors’ demand for emerging-market debt.

Globally, expectations in terms of fixed-income issuances remain positive for 2024 with both sovereigns and corporates encouraged to tap the market. Emerging market countries are rushing to sell debt, taking advantage of increased appetite for new bonds to lock in costs as traders continue to change over when the Federal Reserve will begin lowering interest rates.

Sukuk issuance

Sukuk remains the flagship Islamic Capital Market instrument and one of the fastest-growing sectors of the Islamic finance industry. S&P Global projected that global Sukuk issuance will total $160 billion-$170 billion in 2024, including

GCC SOVEREIGN MATURITIES STAND AT $209.3 BILLION OVER THE NEXT FIVE YEARS (2024-2028), WHILE CORPORATE MATURITIES STAND SIGNIFICANTLY LOWER AT $177.9 BILLION

– Kamco Invest

foreign currency-denominated issuance of $45 billion-$50 billion.

While higher commodity prices and higher for longer interest rates have bolstered finances across the Middle East, Africa and South Asia (MEASA) region, GCC states are proactively issuing Islamic bonds to achieve strategic goals such as building robust debt market structures and diversifying their funding options.

“Issuances of Sukuk is expected to increase in 2024 after seeing two straight years of declines until last year,” Kamco Invest said in January, adding that issuance will be driven by lower prevailing rates, crude oil prices remaining subdued around the $70/barrel levels and diversification as countries and corporates are embracing Islamic bonds in their funding mix.

ISSUANCES OF SUKUK IS EXPECTED TO INCREASE IN 2024 AFTER SEEING TWO STRAIGHT YEARS OF DECLINES UNTIL LAST YEAR. KEY MOTIVATIONS FOR GROWTH IN SUKUK ISSUANCE INCLUDE LOWER PREVAILING RATES, CRUDE OIL PRICES AND DIVERSIFICATION AS SEVERAL COUNTRIES AND CORPORATES ARE EMBRACING ISLAMIC SUKUK IN THEIR FUNDING MIX

– Kamco Invest

It is worth noting that Saudi Arabia and its Vision 2030 economic blueprint boosted issuance in 2023 and is expected to continue to do so in 2024.

Islamic finance remains concentrated in oil-exporting countries that aim to reduce their carbon footprints. This will continue to drive green Sukuk issuance in 2024 as the volume of sustainable finance issuance – both conventional and Islamic - reached a record $22.1 billion as of September 30, 2023, compared with $9.1 billion for the same period a year earlier.

Similarly, the standardised supervision of Islamic finance is expected to lead to greater market confidence and restoration of its attractiveness to issuers. The tokenisation of Sukuk by leveraging blockchain technology is expected to reduce the various costs associated with the issuance process— potentially opening the field to startups and small to medium enterprises.

“Digitalisation could unlock some opportunities as it could streamline Sukuk issuance. Yet, this would require the harmonisation of legal documents and a standardised interpretation of the Shariah,” S&P Global said in a report in January.

Debt markets show healthy issuance despite interest rate hikes by the Federal Reserve, which were largely mirrored in the GCC countries that maintain pegged exchange rates. There are growing signs that capital markets activity will increase in 2024 and the market has easily absorbed the new securities, with investors eager to lock in current yields, with three interest rate cuts expected this year.

Full Steam Ahead

Chief Economist, Deepak Mehra Commercial Bank of Dubai explains that despite some hesitation as interest rates rose, the market for financing is growing and that the need for funding sources is set to continue in the region

How have higher interest rates affected the region’s fixed income debt markets?

As rates started rising in 2022, issuers hesitated to pay higher rates and hence new issuances in the region fell. However, by 2023 it was clear that higher rates were going to stay for a while and so companies that had been waiting on the sidelines started tapping the market for their financing needs. We are seeing the continuation of that trend in 2024 with new issuances coming on a regular basis. The total debt issuance in GCC in 2022 was only $33.84 billion, which rose to $66.96 billion in 2023. However, in just two-and-a-half months in 2024, new issuances within the GCC stand at $38.85 billion, which is a massive jump from the previous year.

How active have regional nonbank financial institutions been in providing credit in recent times?

Regional issuers are able to easily tap international markets thanks to the strong economic backdrop of the region and favourable government policies. As a result, even smaller, first-time issuers have been able to raise money from international fixed income investors. Bond and sukuk markets obviously are far more attractive for an issuer compared to raising funds from non-bank financial institutions.

Is the proportion of US Dollar denominated debt changing across the region?

This has not changed much even though we have started seeing a few Dirham and Saudi Riyal issuances from mainstream issuers lately. The market predominantly remains a USD market. This also helps in attracting international liquidity that is more comfortable with USD paper.

Why has Sukuk issuance risen in the GCC?

There has always been a demand supply mismatch between sukuk issuances and buyers. Demand from buy-tohold Islamic institutions, which have limited investment options, has always outstripped the supply of sukuks. At the same time, setting up and offering sukuks requires additional efforts from the perspective of the issuers and hence the supply has traditionally been low. However, lately, we are seeing a pick-up of sukuk issuance in the GCC region. Total sukuk issuance in the GCC region in 2022 was just $ 9.75 billion which picked up to $29.86 billion in 2023 and in the first two-and-a-half month of 2024 this figure has already crossed $14.60 billion. At this pace 2024 could end up being a bumper year for new sukuk issuances in the region.

What are the overall prospects for regional Sukuk and bond issuance in the coming years?

HOWEVER, IN JUST TWO-AND-A-HALF MONTHS IN 2024, NEW ISSUANCES WITHIN THE GCC STAND AT $38.85 BILLION, WHICH IS A MASSIVE JUMP FROM THE PREVIOUS YEAR

As economies continue to diversify and launch large projects, especially in Saudi Arabia, the need for publicprivate partnerships and international sources of funding will continue to rise. GCC economies, in any case, benefit from extremely low debt-to-GDP ratios compared to other developed countries while at the same time economic growth is strong. This gives the GCC countries sufficient headroom to borrow internationally to finance domestic growth and diversification efforts. Hence, we expect bond and sukuk issuances from the region to remain healthy.

Deepak Mehra, Chief Economist, Treasury, Asset Management and Global Markets Department, Commercial Bank of Dubai

CENTRAL BANK DIGITAL CURRENCY

The Need to Connect

CBDCs are taking root in the region as interest in them increases across the globe. Nick Kerigan Managing Director, Head of Innovation at Swift answers key questions about interoperability and its role in the progress of CBDCs development

How are CBDCs continuing to develop globally, including in the MEA region?

Interest in CBDCs continues to gain momentum worldwide. Currently more than 130 countries are now exploring a digital currency, according to the latest Atlantic Council tracker. Several have fully launched a CBDC, while more are in advanced phases of development, including pilot stage. A recent survey from the Official Monetary and Financial Institutions Forum found that nearly 70% of central bank respondents expect to issue a CBDC within the next decade. China’s digital yuan has passed USD 250 billion in transactions within oneand-a-half years of its launch, while the ECB is now in the preparation phase for a digital euro. In India, meanwhile, commercial banks are processing a million transactions per day throughout the country for the digital rupee.

CBDCs are a focus throughout the MEA region, with the latest Atlantic Council tracker showing multiple countries have CBDCs in development. In the Middle East, the Central Bank of the UAE has been involved in various CBDC experiments and in January 2024 completed its first digital dirham transaction with China, valued at USD 13.6 million.

Nick Kerigan, Managing Director, Head of Innovation, Swift

The tracker also indicates that Turkey and Saudi Arabia are at pilot stage. Across Africa, Nigeria is among the countries globally that have launched a CBDC whilst Ghana, Tunisia and South Africa have reached pilot stage.

What challenges does the development of CBDCs present?

While the rise of CBDCs is accelerating, fragmentation at the global level remains a major risk. As central banks develop their own digital currencies and seek to solve different use cases, they’re using different technologies, standards and protocols. If such fragmentation persists, it could lead to unconnected ‘digital islands’ springing up around the world, presenting barriers to businesses and consumers attempting to make international payments using CBDCs.

This is only one element of increasing fragmentation fuelled by digitalisation and geopolitical shifts. As such it becomes even more important to ensure interoperability in payment systems and avoid new frictions. With new technologies evolving and new forms of value coming on stream including CBDCs, the financial community can work together to ensure seamless interconnection between new and existing systems.

How is recent work on CBDCs helping to pave the way forward?

We have been working closely with our community to investigate whether and how Swift can enable the global CBDC ecosystem. We are agnostic about whether CBDCs should or should not be used. Our focus is on facilitating crossborder interoperability and interlinking between different CBDCs, and between CBDCs and existing payment types and systems, if they are introduced. We have been working with the community to lay out a path to seamlessly exchange CBDCs on a global scale, regardless of the tech they’re built on and alongside fiat currency.

In 2021, we published the results of a first round of experiments that showed how Swift could enable interoperability between CBDCs. Further experiments in 2022 demonstrated a new interlinking solution for connecting CBDC networks and existing payment systems. We opened this up to testing by the Swift community through our first phase of sandbox testing, with results published in March 2023. Following that, we released an enhanced beta version of our connector solution, tested with three central banks.

In July 2023, we launched a second phase of our CBDC sandbox project, one of the largest global CBDC collaborations ever. We explored more complex use cases, using the solution to connect and orchestrate transactions across simulated digital trade and tokenised asset and FX networks, alongside CBDCs for payments. The project was carried out over six months. 38 central banks, commercial banks and market infrastructures from around the world participated, including the Standard Bank of South Africa from MEA. The experiments found that the solution has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets and enable efficient FX settlement – all while allowing financial institutions to continue to make use of their existing infrastructure.

IN JULY 2023, WE LAUNCHED A SECOND PHASE OF OUR CBDC SANDBOX PROJECT, ONE OF THE LARGEST GLOBAL CBDC COLLABORATIONS EVER

What tangible outcomes could the industry expect to see in enabling CBDCs to better interoperate?

In digital trade, the collaborative experiments successfully demonstrated interoperability between different digital networks and trade platforms, with Swift’s solution facilitating atomic trade payments – payments that are completed simultaneously, alongside the transfer of assets, rather than sequentially. Smart contracts and event-driven programming enabled the automation of payments only once certain conditions had been met, meaning trade flows could potentially become automated 24 hours a day, seven days a week. Participants also highlighted the solution’s potential to reduce delays in global trade, enhance trust among parties and significantly lower transaction costs.

In securities, the lack of interoperability between tokenisation platforms is a barrier to the growth of tokenisation. The experiments showed that Swift’s solution was able to interlink multiple asset and

cash networks and could facilitate atomic delivery versus payment across those platforms. Tokenisation is a new market which is attracting widespread industry interest due to its potential to improve liquidity, lower transaction costs and enhance transparency and security.

Finally, the experiments showed that the connector could play a role in foreign exchange. Working closely with CLS, the connector was shown to be interoperable with the existing market infrastructure, facilitating FX netting and settlement via CBDCs.

What are the next steps for moving towards greater interoperability for CBDCs?

Participants in our experiments agreed on three principles for interoperability. The first is interlinked networks – it is essential to ensure native technical interoperability between different digital networks. There is an opportunity to achieve interlinking by leveraging the industry’s investment in ISO 20022 messaging as the common language for payments across new and established networks.

CBDCS ARE A FOCUS THROUGHOUT THE MEA REGION, WITH THE LATEST ATLANTIC COUNCIL TRACKER SHOWING MULTIPLE COUNTRIES HAVE CBDCS IN DEVELOPMENT

Second, a single point of access can enable institutions to reuse their existing channels, reach new networks and bring down participation costs. Co-existence is the third principle. With new digital networks expected to co-exist with traditional market infrastructures, seamless interactions will be needed between the new and the old.

We plan to continue collaborating on CBDCs with our global community, based on these shared principles, to help further drive innovation and continue working towards interoperability

Duty Calls

George Hojeige Group CEO of one of the UAE’s most proactive and innovative specialised business solutions providers, occupies a special vantage point when addressing questions about Corporate Tax, and here offers his insights into this newly inaugurated fiscal reality in the country and how it will affect both businesses and the economy

What were the necessities leading to the introduction of corporate tax by the Government of the UAE?

The UAE envisions doubling its gross domestic product (GDP) from AED 1.49 trillion to AED 3 trillion by 2031, with more than AED 800 billion coming from non-oil exports, as it seeks to solidify its standing as a global economic and investment hub.

To achieve these bold targets, the UAE has intensified its efforts to further develop and diversify its non-oil revenue sources – and one essential path is the introduction of corporate tax.

Officially rolled out in June 2023, the UAE corporate tax scheme is projected to generate revenues amounting to AED 47.7 billion, which is equivalent to approximately 15% of the country’s gross non-oil revenue.

Alongside Value Added Tax (VAT), which has yielded over AED 147 billion in revenues since its successful implementation in 2018, corporate tax is expected to significantly augment public funds and further promote nationwide fiscal stability.

Moreover, by supplementing the UAE’s strict policies against money laundering and terrorist financing, the additional reporting requirements that come with the newly introduced corporate tax legislation will help enhance transparency in business activities and financial reporting in the country, thus solidifying its reputation as a premier international business, trade and financial centre.

In fact, the UAE has successfully exited the Financial Action Task Force’s grey list recently, signalling growing confidence among international investors and establishing the UAE as an even more attractive hub for foreign direct investment (FDI).

What are the benefits of corporate tax for the UAE economy?

In addition to creating new revenue sources and boosting the UAE’s attractiveness as a global trade and

George Hojeige, Group CEO, Virtugroup

economic hub, corporate tax is anticipated to accelerate infrastructure development in the country and facilitate investment in large-scale projects that will drastically elevate the country’s competitive edge, regionally and globally, thus bringing more business and investment opportunities to UAE-based companies in the long run.

Also, by bringing the reporting standards and practices of local businesses in line with global benchmarks for quality, excellence and transparency, companies operating in the UAE can better attract international investors, giving them the financial boost they need to significantly expand and scale their operations.

In the event that a business owner decides to sell their company, having an existing financial reporting framework will certainly be advantageous for them, as they can easily prove their liquidity and profitability.

On which categories of business income is corporate tax in the UAE going to be levied?

The UAE has introduced a standard corporate tax rate of 9%, the lowest among the Gulf Cooperation Council (GCC) countries, which only applies to entities with annual net profits exceeding AED 375,000. Entities with annual net profits less than or equal to AED 375,000 can benefit from a 0% tax rate.

On the other hand, large multinational companies earning a total global revenue of AED 3.15 billion will be subject to a 15% corporate tax rate. This taxation policy has been made in accordance with the Pillar Two of the Organisation for Economic Cooperation and Development (OECD) base erosion and profit shifting (BEPS) project.

Under the UAE’s corporate tax scheme, a company’s taxable profit comprises its revenue minus its businessrelated expenses. This is calculated by considering the net income of the company, and not the total revenue or sales volume.

However, certain expense categories have specific rules, including salaries

IN ADDITION TO THE LATE REGISTRATION PENALTY, NON-COMPLIANCE WITH OTHER CORPORATE TAX REQUIREMENTS CAN LEAD TO FINES RANGING FROM AED 500 TO AED 20,000 PER VIOLATION

paid to business owners, financing and interest costs, entertainment spending and profits made by foreign branches.

These specific rules indicate that: Business owners who are paying themselv es a salary must set the salary at a fair market rate, or an amount that is similar to what an unrelated employee would receive under a similar employment arrangement. Businesses are allowed to deduct their financing and interest costs. However, the amount of interest expense they can deduct is limited to 30% of their earnings before interest, taxes, depreciation and amortisation (EBITDA). This cap has been put in place to prevent businesses from taking advantage of the different tax treatment of equity and debt, such as when a business takes on excessive levels of debt to reduce its taxable income via increased interest expenses. Only 50% of entertainment-related expenses can be deducted. These expenses can include costs for meals and accommodation that were incurred to entertain customers, suppliers, shareholders and similar parties.

Companies that have a branch in another country can claim a foreign tax credit for the amount of tax they paid in that country in relation to that branch. Alternatively, they can also apply for an exemption of the profit made by their branches outside the UAE.

In addition, the implementation

of corporate tax corresponds to a company’s financial year. For most businesses incorporated in the UAE, this means they have become taxable from January 1, 2024. There are exceptions to this general rule, however.

For example, companies registered in the Dubai World Trade Centre base their financial years according to their memorandum of association.

Are any businesses, or are there any circumstantial instances, where exemptions from corporate tax can apply?

The UAE Ministry of Finance (MOF) has declared that the following income sources will be exempt from corporate tax under most circumstances: dividends and other profit distributions received from other UAE companies, as well as capital gains from selling the shares of a UAE subsidiary company.

Businesses or legal entities operating in the following industries can also qualify for corporate tax exemption:

Government or public entities: These comprise federal and regional offices, departments, divisions and all other public institutions.

Businesses engaged in extracting or mining natural resources: Companies that extract or mine natural resources in the UAE are subject to Emirate-level taxation, which exempts them from filing a separate tax report.

Public or regulated private entities: T hese refer to entities dealing with social benefit funds, such as pension or retirement planning.

Real estate or regulated investment funds: Such funds must first apply for a formal exemption approval from the MOF and FTA.

UAE Government-owned companies: Companies that are fully owned by the UAE government and listed with a ministry-level decision are tax-exempt.

Charitable organisations: These are entities working for charitable causes, which must first apply to relevant authorities and secure a formal clearance before applying for MOF registration and exemption.

Businesses registered and operating in free zones may also qualify for exemptions depending on their revenue sources and activities. Businesses with an annual turnover below AED 3 million can be exempt from tax for up to three years; however, this does not exempt them from fulfilling their corporate tax obligations, such as registering for corporate tax, maintaining proper accounting records and submitting an annual tax report with the FTA.

What are the consequences for businesses failing to meet the deadlines for corporate tax registration?

The FTA has recently announced a penalty of AED 10,000 for late registration. It has also announced that corporate tax registration deadlines will now be based on the month of a company’s license issuance, irrespective of the year of issuance.

In addition to the late registration penalty, non-compliance with other corporate tax requirements can lead to fines ranging from AED 500 to AED 20,000 per violation. For example, failure of a business to keep the required records mandated by the corporate tax law can result in an AED 10,000 penalty for each violation, which will be increased to AED 20,000 for each repeated violation within 24 months from the date of the first violation.

How are free zone businesses affected by corporate tax?

As it is committed to promoting a business-friendly environment in its free zones, the UAE Government has made several exceptions for companies incorporated in these special business jurisdictions.

It is important to note, however, that a free zone business is not automatically exempt from corporate tax. As such, free zone businesses still need to register for corporate tax, keep proper accounting records and file their annual submission with the FTA. In addition, entities based in free zones that are generating revenue from outside of the UAE must still adhere to these compliance requirements. These policies will also apply to free zone companies:

A free zone business can qualify for an exemption from corporate tax if it derives 95% or more of its revenue from qualifying activities or transactions. Examples of qualifying activities include the manufacturing and processing of goods and materials; holding of shares and securities; reinsurance services; wealth, fund and investment management services;

and the ownership, management and operation of ships.

A free zone business can also qualify for an exemption if 95% or more of its revenue is derived from other companies located in UAE free zones.

In addition to the criteria above, a business must meet further conditions to be deemed a “Qualifying Free Zone Person” to be exempt from corporate tax, such as demonstrating sufficient economic substance in their respective free zone and completing an audit of their annual accounts.

A free zone business that does not meet those exemption criteria can still qualify for other tax relief options, such as the Small Business Relief rule, which provides support to start-ups, SMEs and microbusinesses by alleviating their corporate tax duties and compliance costs. Businesses earning a total revenue of below AED 3 million for each tax period (relevant or previous) will not be required to pay corporate tax. The UAE Government has made this relief available until the end of 2026.

Do freelancers in the UAE also have corporate tax obligations?

Individual freelancers – and sole proprietorships – will only need to

register for corporate tax if their revenue exceeds AED 1 million. Freelancers and sole proprietorships that reach these thresholds will be subject to a 9% tax rate, which will be based on their appropriate income amount, unless they qualify for one of the available exemptions or relief rules.

As with other entities, however, they also need to perform proper recordkeeping and accounting to fulfil their tax obligations.

How does corporate tax affect the day-to-day functioning of businesses operating in the UAE?

As part of the UAE’s corporate tax regulations, businesses must start keeping proper accounting records, which should follow International Financial Reporting Standards (IFRS). These records will be crucial in completing their company’s annual tax filing, especially when it comes to proving that they should pay 0% tax or that they should be fully exempt.

This minimal reporting obligation applies to all companies in the UAE, including entities generating zero revenues, businesses with a single shareholder, companies registered in free zones and even those that qualify for an exemption from paying tax. Essentially, these accounting records are meant to support the tax position of the business and verify its tax obligations (or lack thereof).

Businesses that are already registered for VAT must also register for corporate tax, as this is a separate compliance requirement.

Does the implementation of corporate tax change the processes of setting up a business in the UAE?

The company formation process in the UAE will remain unchanged; however, entrepreneurs and business owners must take note of their corporate tax requirements from the outset and ensure these are accounted for in their operational strategy. As aforementioned,

all businesses must register for corporate tax, maintain accounting records and complete their annual tax filing.

Furthermore, even with corporate tax, individuals can still choose to set up a business to secure their visas and that of their loved ones. They will then fall under the category of zero-revenue businesses, but must still comply with corporate tax rules to prove they should be subject to a 0% tax rate.

As an alternative, they can also explore the UAE Golden Visa, which grants qualified individuals with a 10-year residence visa, as well as other exclusive benefits, such as the ability to sponsor loved ones on 10-year visas and the privilege of keeping their visa valid even if they stay outside of the UAE for more than six months.

On another note, these new corporate tax requirements underline why it is important for businesses to work with a corporate service provider that can assist them from the setup stage and beyond, including ensuring their full compliance with their tax requirements.

Are companies now prepared for corporate tax, almost a year after its introduction?

Around 94% of the companies in the UAE are made up of small and medium-sized businesses. As we (Virtuzone) specialise

in supporting SMEs, we have observed that many businesses are still uncertain about their corporate tax obligations and the specific steps they need to take to achieve tax compliance. This lack of awareness and misinformation pose challenges to tax compliance among SMEs and put them at risk of incurring penalties. We have been constantly deploying awareness campaigns to bring attention to corporate tax matters and obligations.

How is Virtuzone working with businesses and start-ups to help them become compliant with corporate tax in the UAE?

As a company formation specialist and corporate service provider that has been working closely with entrepreneurs, microbusinesses and SMEs for the last 15 years, Virtuzone has made it a top priority to empower local businesses by guiding them into becoming wholly tax-compliant.

In the last quarter of 2023, Virtuzone launched a large-scale initiative that saw thousands of businesses register for corporate tax for free, receive complimentary accounting services and benefit from a zero-penalty compliance guarantee.

Building on this momentum, Virtuzone continues to provide free corporate tax registration and complimentary tax consultations to businesses and entrepreneurs. It has also introduced cost-effective and customisable tax and accounting packages to provide SMEs with long-term and sustainable solutions to their unique tax needs.

For more than a decade, Virtuzone has been championing the interests of SMEs and serving as the voice of thousands of entrepreneurs doing business in the UAE. With this milestone legislative shift, Virtuzone further cements its role as a strong advocate of entrepreneurship in the country by providing swift and timely support to smaller businesses, enabling them to seamlessly transition and adapt to the new corporate tax regulations.

Redefining SME Banking

Amjad Ramahi Senior Solutions Engineer and Jarno

van Hurne VP

Product, Business Banking, point out the gaps between the needs of SMEs and banks and show how Backbase have helped to fill that space

According to the World Bank, the GCC economy is projected to grow by 3.6% in 2024 and 3.7% in 2025, positioning it as a hub of opportunity, particularly for the fintech sector. At its core are the region’s small and medium-sized enterprises (SMEs), which comprise approximately 90% of all companies in the GCC and serve as the primary drivers of job creation, innovation and economic vitality.

Despite their pivotal role, SMEs encounter persistent hurdles in accessing financing tailored to their needs. Many banks in the region offer generic banking products and services that fail to address the unique requirements of SMEs, such as flexible financing options and industryspecific advisory services.

What key trends are we seeing in the SME banking landscape?

In the SME banking landscape, we’re witnessing several key trends that reflect the evolving demands of small and medium enterprises. First, SME founders are seeking better financial and business insights, demanding a banking experience that presents their financial status clearly, simply and transparently. The expectation is for instant services and swift responses, striking the perfect balance between human interaction and digital convenience.

Speed of services

SMEs are also increasingly seeking efficient and responsive banking services. A significant 53% of them emphasise the need for an intuitive

digital banking experience and effective self-service platforms. Simultaneously, 33% of SMEs value the availability of bank personnel for personalised advice, highlighting a demand for services tailored to their unique business needs. This indicates a preference for a blend of digital convenience with personalised, human-centric support. Despite these expectations, there’s a gap in the provision of advanced digital financial services by banks, such as rapid underwriting and CFOas-a-service, underscoring a critical area for improvement to meet SMEs’ specific requirements.

Rise of the Financial Super Apps:

Furthermore, the emergence of financial Super Apps represents a notable trend in the SME banking sector. These apps combine various financial services, such as payments, lending and insurance, into a single integrated platform, greatly

simplifying financial management for SMEs. As these super apps gain popularity, SMEs are increasingly relying on digital tools for managing working capital needs, including online invoicing, inventory management and supply chain financing, indicating a shift towards comprehensive digital solutions that support the full spectrum of SME banking needs.

With reports indicating a $5.2 trillion unmet finance need in global business lending, how does Backbase view the untapped opportunities in SME banking and what role can banks play in bridging this gap?

The rise of digital technologies and fintechs has sparked innovation in SME and commercial banking, improving service quality, intensifying competition and heightening customer expectations. Fintechs and agile incumbents are leading the charge in crafting real-time, automated and contextual solutions to meet the evolving needs of commercial customers. Failure to actively defend and grow in this sector risks significant losses for banks, given SMEs’ substantial contribution to banking revenues worldwide. Despite representing a vast untapped market with finance needs far exceeding current lending.*

In the Middle East, particularly in the UAE, SMEs account for about 60% of the non-oil GDP in 2022, underlining how crucial they are to economic development. Yet, the journey to secure loans is fraught with complexities that can deter SMEs

Amjad Ramahi, Senior Solutions Engineer, Backbase

from obtaining the financial support they critically need.

Currently, only a mere 8% of bank lending in the Middle East and North Africa reaches SMEs, leaving many businesses credit constrained. The traditional lending model, characterised by its human-centric approach requiring multiple branch visits, extensive paperwork and limited customisation, has become outdated and inefficient. The need for customercentricity, automation, quicker processing times & dependable decision-making are the critical drivers for the future of lending. Digital is the future of lending.**

Only 8% of bank lending is available to small and medium enterprises in the Middle East and North Africa. A large number of firms in need of a loan are unable to obtain one and thus are credit constrained. The conventional lending ecosystem has typically been a human-centric journey with multiple visits to the branches, detailed paperwork, limited personalisation and overall, a long-drawn process till disbursement. The need for customercentricity, automation, quicker processing times and dependable decision-making are the critical drivers for the future of lending. Digital is the future of lending.***

In what ways is Backbase enabling banks to meet the needs of small business owners in their day-today banking needs, addressing both their commercial and personal financial objectives?

We help financial institutions become the one-stop shop for SMEs, offering a unified platform that supports the entire customer journey. From onboarding to servicing, lending and investing, everything is integrated into one platform. This enables the creation of tailored value propositions tailored to different SME segments. By providing SMEs with the following benefits, we address both their business and personal financial needs:

• Pr oviding clarity of financial performance

• Providing transparency in available support

• Financial analysis of performance and runway to enable quick decision making

• Balance human- touch with digital self-service

• Growing independence of business finances and preparing for transfer of financial control

Could you elaborate on how Engagement Banking benefits SMEs in the Middle East, specifically in enhancing their banking experience and operational efficiency?

Engagement Banking is transforming SME banking in the MEA region, enhancing customer experiences and operational efficiency. A prime example is Mauritius Commercial Bank (MCB), which took significant steps to better serve its SME customers.

Responding to the critical need for better service, MCB introduced JuicePro in 2019. This mobile-first application was specifically designed to meet the unique demands of SMEs, offering faster response times and more convenient banking solutions.

* https://www.linkedin.com/pulse/gccs-trifecta-economic-boom-sme-power-payment-revolution-m4hif/

** https://www.weforum.org/agenda/2021/11/improving-access-to-finance-for-businesses-mena-region/

***https://www.eib.org/attachments/publications/mena_enterprise_survey_report_working_papers_vol1_en.pdf )

Powered largely by Backbase’s out-ofthe-box journeys, JuicePro was launched in less than a year and quickly expanded its offerings to include features such as express overdraft and merchant services. The impact has been significant: 24,000 app subscribers, 77% monthly active users and an impressive 266% increase in transactions year-on-year. Through JuicePro, MCB has successfully redefined the banking landscape for SMEs, balancing innovation with customer-centricity.

How is Backbase enabling SMEs to tap into new opportunities for growth and collaboration with fintechs and what role does Backbase’s platform play in facilitating this transition?

Backbase is leading the way for SMEs to unlock new growth opportunities and forge stronger collaborations with fintechs via open banking and ecosystems.

The trend is clear: SMEs need more than what traditional banking offers. Our platform enables this by extending banks’ capabilities, moving them Beyond Banking to deliver meaningful, integrated experiences for SMEs.

Moving to an industrialised platform introduces new offerings and revenue opportunities for banks, all while boosting customer relationships. Collaborating with external service providers, banks can now meet diverse SME needs comprehensively.

• A financial solution that caters to both their financial and business requirements, focusing on everyday necessities and providing access to capital when needed.

• Invoicing solutions that streamline billing processes.

• Tax Management tools to simplify tax filing and compliance.

• softPOS systems to accept payments easily.

• Expense Management features to track and control spending.

• AR & AP Automation to improve cash flow management.

Jarno van Hurne, VP Product, Business Banking, Backbase

Progressing Growth

Khurram Hilal Chief Executive Officer, Group Islamic Banking at Standard Chartered provides a positive growth outlook for Islamic Finance and reflects how the bank has leveraged its existing expertise and experience to be a leader in this space

Islamic banking global value is projected to reach $4Tn in about two years. What lies behind this growth?

Islamic Finance continues to outpace conventional banking resulting in an increased market share for Islamic Finance markets. The growth of Islamic Finance is influenced by a number of factors that vary in their impact across different regions and countries.

Islamic Finance has expanded beyond the traditional banking, providing a wide range of products to its customers that are no less competitive than conventional products; in fact, they offer more value by having the Shariah wrapper around them. Developing technologically innovative and sophisticated Shariah-compliant products also makes Islamic banking more appealing to a broader customer base.

The regulatory landscape in key Islamic finance markets is evolving and regulators continue to strengthen the shariah governance framework. Various regulatory guidelines issued around Shariah Governance, including responsibility of directors and management, Shariah non-compliance risk, external audit requirements etc. have aided its integration into the global financial system and brought standardisation across markets.

Governments and regulators have set Islamic Finance specific targets in major markets such as Malaysia, Pakistan, Indonesia and Türkiye and we have also observed an increasingly receptive attitude from conventional regulators towards Islamic banking.

The rise of fintech in Islamic finance has made it more accessible and efficient, attracting a broader customer

base, including younger and tech-savvy generations. This change has enabled the ease and speed of transactions and greater accessibility of Islamic financial products and services.

That being said, there are few other factors which are important for the future sustained growth of the Islamic finance sector.

First, the creation of a substantial pool of talent is indispensable for the future growth of Islamic finance. Therefore, it is essential to ensure a steady stream of competent and versatile talent. This will require a co-ordinated and concerted collaborative efforts of all stakeholders.

Second, in terms of awareness and knowledge sharing, there is still much progress to be made in educating people about Islamic financing, which will require a committed and collaborative effort from government, industry bodies, financial and academic institutions.

Why do Gulf Cooperation Council(GCC) countries currently command over 40% of global Islamic banking assets?

Several factors contribute to the popularity of Islamic banking services in the GCC countries. First, with strong religious and cultural influence, with the population in GCC countries being predominantly Muslim, which creates a high demand for products and services that align with Shariah principles. Secondly, many of these countries have a stable economy with a high concentration of wealth which has fuelled the economic growth and development in the Islamic banking sector, thus providing a strong base for banking activities. Third, GCC countries have enabled a robust regulatory framework supporting the growth and development of Islamic banking. Lastly, the GCC countries are home to some of the world’s largest and most innovative

Khurram Hilal, Chief Executive Officer, Group Islamic Banking at Standard Chartered

Islamic banks, which drive innovation and product development in the industry.

Foreign currency Sukuk issuance grew in core Islamic Finance countries during 2023, will this continue as a trend?

We anticipate that the trend of foreign currency Sukuk issuance will continue. Furthermore, innovative technology such as digitalisation could make Sukuk issuance more efficient and create additional opportunities. Sustainable Sukuk issuance, which aligns with reducing carbon footprints – thus helping us meet our ESG commitments – continued to increase in 2023 and is projected to grow further. Year to date, we have already seen a very heavy sukuk pipeline at a pace that we have not seen in the recent past.

Improved visibility regarding the medium-term trajectory of interest rates, especially towards the end of 2023, positively impacted foreign currencydenominated Sukuk issuance, which rose by 33% compared to the previous year. Interest rates are expected to remain favourable in 2024.

Additionally, ongoing economic development programs suggest that financing needs in core Islamic finance countries will remain high. S&P Global Ratings predicts that global Sukuk issuance will reach around $160 billion-$170 billion in 2024, up from $168.4 billion at the end of 2023.

Will the proportion of sustainable Sukuk issuance within the overall Sukuk market continue to grow?

The proportion of sustainable Sukuk issuance by Standard Chartered within the overall Sukuk market is expected to continue to grow. The volume of sustainable Sukuk issuance, aligned to reduce carbon footprints, has increased in 2023 and is expected to continue. As Islamic finance is mainly concentrated in oil-exporting countries that aim to reduce carbon footprints, the issuance of sustainable Sukuk is expected to increase.

The increasing focus on sustainabilityrelated themes by core Islamic finance players will create new opportunities for the industry.

Standard Chartered is expected to contribute to this trend through sustainable Sukuk issuances. However, it is essential to note that various factors, such as changes in global economic conditions, regulatory changes and the pace of digital transformation in the financial sector, could influence these trends.

As the Islamic fintech sector continues rapid growth, can the GCC supplant Indonesia as home to the highest number of Islamic Fintech companies?

While the GCC can supplant Indonesia given the right conditions, it’s also important to note that the growth of

start-ups which relies on market demand for Islamic financial services. Fortunately, at Standard Chartered, we have seen investment and demand.

Will global growth of institutions and more sophisticated Islamic finance instruments make standardisation more necessary?

Undoubtedly, standardisation is necessary for the integration of Islamic finance at national and international levels. Transparency and consistency are achieved through standardisation. It is important, however, to ensure that standardisation is inclusive to avoid issues like those faced when Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) standards were adopted in certain core countries. Standardisation also facilitates growth

UNDOUBTEDLY, STANDARDISATION IS NECESSARY FOR THE INTEGRATION OF ISLAMIC FINANCE AT NATIONAL AND INTERNATIONAL LEVELS

the Islamic fintech sector is not a zerosum game. The growth in one region doesn’t necessarily have to come at the expense of another. Both areas can grow and thrive, contributing to the overall development of the global Islamic fintech sector. That said, the growth rate of Islamic fintech companies in the GCC compared to Indonesia will be crucial. If the GCC can maintain or increase its current growth rate, it could potentially catch up with or surpass Indonesia.

The regulatory environment in both regions will play a significant role: supportive regulations are necessary to encourage the growth of Islamic fintech companies. Two other factors should be considered: growth will depend on the level of investment and funding available for Islamic fintech

and innovation and helps avoid situations where the lack of consensus among Shariah scholars hampers innovation. A balance between collective initiatives and regulatory revisions can ensure that standardisation is achieved without negatively impacting financial innovation. According to ICD-LSEG Islamic Finance development report 2023, Islamic Finance is expected to reach US$6.7 trillion by 2027. The expansion of Islamic Finance assets is anticipated from the large Islamic finance markets such as the GCC, Malaysia and Indonesia who are continuing to strengthen their domestic Islamic finance industries, and Pakistan following its Federal Shariah Court judgement on Riba in 2022 to become interest-free.

Telling it like it is

Answering questions about Islamic Asset Management Christiane El Habre Regional Managing Director, Middle East, at Apex Group provides a straightforward account of market conditions, assumptions and behaviours that slow the potential growth and development of the Islamic Asset Management sector

How has Islamic Asset Management traditionally fared in the region when up against conventional products?

Traditionally, the Islamic Asset Management (IAM) area has always grown better than traditional assets (13% versus 11% over 5 years ending 2021). But the issue is that IAM’s are very small compared to the traditional assets. The funds are very small, the range is small and extremely few providers are offering a range of products. Marketing of IAM products is also very basic, do not appeal to the complex segmentation of the regional market and are challenging to subscribe to. Whether we are speaking about the retail customer, professional client, family office client, managed client or institutional client, IAM products struggle to even get on the list even if there is an appetite or allocation for IAM products. Consequently, in the heartland of Islam and in the wider middle east, it is unfortunate that IAM products aren’t more wide-spread, and the same issue occurs in other countries with a substantial Muslim population such as India, Indonesia, UK, Germany, etc.

Have Islamic funds AUMs been increasing in recent years, both regionally and globally?

Islamic Funds AUM have increased in recent years but while the appeal of global Islamic Finance is growing overall, structural issues place a brake on its’ potential and wider market appeal that could be loosened with progress toward standardisation. However, with positive forces in some core markets, Islamic

Christiane El Habre, Regional Managing Director - Middle East, Apex Group

finance assets are set to grow through 2024. Indeed, prior to this, in the decade up to the beginning of 2022, the global Islamic funds market grew by around 300%, with assets under management growing by nearly 14% in 2020, in spite this year being in the thick of the Covid19 pandemic. Regarding Sukuk, issuance in the GCC was $9.75 billion in 2022 and grew to almost $30 billion the following year, 2023, with the first quarter of this year heading toward a figure of $15 billion.

The perceived and tangible alignment of Islamic Finance with current day concerns around ESG related matters may well broaden the appeal of this sector beyond Muslim nations and markets, and brings an opportunity for notable growth in Islamic Funds that could well play a visibly large part in their future uptake.

Another factor that has influenced the market is the post-pandemic and continuing acceleration of technology in the sector. With products and services more available via digital platforms, and the younger, more technologically familiar demographics of many core or traditionally Islamic markets, further growth in assets under management and usage of general Islamic Finance services seems set to increase.

Can it be assumed that a Sharia Fund has an automatic selling advantage in Islamic cultures?

There is no automatic advantage at all. Whilst there are several Sharia Funds available in

WHILST THERE ARE SEVERAL SHARIA FUNDS AVAILABLE IN ISLAMIC CULTURES AND NATIONS, THEY AREN’T BIG ENOUGH OR DIVERSE ENOUGH TO APPEAL TO MULTIPLE SEGMENTS

SO, ASSUMING THAT IT IS A SHARIA FUND AND THEREFORE MUSLIMS WILL AUTOMATICALLY INVEST IN THEM IS NOT ACCURATE

Islamic Cultures and nations, they aren’t big enough or diverse enough to appeal to multiple segments. For example, the underlying and only assumption of Sharia Funds frequently is that they are Sharia based and therefore should be able to be sold. This is a very limited view; Sharia Funds are competing with every other type of fund out there and the entire asset management industry is further competing for investor dollars. So, assuming that it is a Sharia fund and therefore Muslims will automatically invest in them is not accurate. This is one of the reasons why the Sharia Fund market has not grown substantially Depending on the client segment and marketing, the level of automatic advantage can be judged. Retail customers are mostly swayed by this fact but as soon as the client sophistication grows, the sharia factor’s importance reduces and due to the small range/size of sharia funds, they progressively get qualified out. Hence institutional money is much less in Sharia Products. To take another example, Waqfs – Islamic charities or endowments are very rarely the source of liquidity or capital for Sharia Funds, this is a massive pool of capital which is rarely untapped. This is where there will be an automatic selling advantage for Sharia funds, but the entire ecosystem has to be developed and improved for Waqf’s to invest in Sharia products for philanthropic reasons.

With asset managers facing demands for sustainability or ESG related products, is Islamic Asset Management discovering an inherent advantage?

Attempts to align IAM with ESG have been long standing. On the face of it,

both are ethical or sustainable investing and therefore should be quite easy to push. The amount of assets looking for ESG deployment is massive. The issue arises from the difficulty of mapping what ESG taxonomies, structures, regulatory requirements etc. need with the very nature of Sharia Funds. The lack of an industry standard, globally acceptable, regulatory based Sharia investment framework, lack of big investable opportunities and ticket sizes (European Pension and Institutional funds need liquid large funds to invest), lack of independent validation of investments such as ESG Due Diligence, lack of case law for ESG/ Sharia Fund investments all create an issue. If IAM can improve these factors, very large institutional transfers will happen.

In terms of professional function or oversight, does the Islamic Asset Management market need further development?

All elements of this area can gain from improvements, such as fund marketing, fund investments, fund platform developments, product development, fund distribution all can benefit from professionalisation of those functions. Many of the recent technology developments should be considered – such as application of artificial intelligence to blockchain to tokenisation, etc. which can assist in improving the efficiency of these funds. Focusing on improving the entire distribution mechanism will go a long way to further increase the AUM of this sector

The Time is Now

In a highly banked region with well performing economies, and a sector exhibiting strong fundamentals, the M&A environment in banking looks set to flourish

Mergers and acquisitions (M&A) among banks in the GCC region, which have already been underway for several years, will continue.

“GCC banks’ shareholder structure, characterised by a concentrated pool of state-linked entities and groups, facilitates tie-ups between lenders and means that this M&A process is set to continue,” according to Moody’s.

With more than 175 banks set against a population of 60 million people, both retail and commercial banking customers in the GCC, further consolidation will create revenue synergies as greater market share translates into growth opportunities.

M&A continues to be an essential part of the transformation journey across the region’s banking system and has the potential for further synergies, in terms of creating banks with greater scale to support national visions and in terms of revenue and cost synergies.

Banks in the GCC have been among the biggest beneficiaries of the region’s recent economic boom, on the back of higher oil prices, contained inflation and higher for longer interest rates. Profits are on the increase and asset quality is sound, with lenders also enjoying strong capital and liquidity levels.

GCC banking system remains highly fragmented making competition intense and pressure on small banks’

profitability, alternative delivery channels and competition from digital banks are expected to increase shareholders’ appetite for consolidations.

Meanwhile, Islamic finance assets are projected to expand by as much as 10% annually in 2023/24, supported by solid growth among Islamic banks in the GCC region. “GCC countries – notably Saudi Arabia and Kuwait – largely fueled this performance, supported by a large, one-off acquisition in the latter,” S&P Global said in its Islamic Finance Outlook 2024 edition.

The GCC banking sector is characterised by strong fundamentals, with dominant lenders such as First Abu Dhabi Bank (FAB), Qatar National Bank and Saudi National Bank, more resilient to global market forces.

However, weaker asset quality, the competitive landscape and changing consumer behaviour will have a farreaching impact, particularly on midsized and smaller banks and the case for consolidation remains compelling.

An enabling environment

The global oil price crash of 2015 fueled a wave of consolidation among banks in the Gulf region as low oil prices – averaging $53 a barrel – constrained growth opportunities and decimated their profits.

Over the past decade, rapid consolidation has continued particularly among large GCC banks – a trend that is expected to continue as the banking behemoths seek greater scale to support regional governments’ economic diversification agendas.

“After several years of design and planning, ambitious economic diversification initiatives, especially in Saudi Arabia, are reaching the construction stage. The region’s banks will need to be larger to support these projects,” said Moody’s.

The advent of FAB, with $318 billion (AED 1.2 trillion) in assets by 2023, formed by the merger between First Gulf Bank and the National Bank of Abu Dhabi in 2016, created a regional banking giant and spurred a wave of consolidation in the banking sector across the Middle East.

Saudi Arabia followed suit by consolidating the National Commercial Bank and Samba Financial Group into the Saudi National Bank – SNB, a financial powerhouse with assets at $277 billion (SAR 1.04 trillion) assets in 2023.

The kingdom has encouraged mergers in the banking sector as it seeks to create stronger entities able to support the role the private sector can play in advancing its economic diversification strategy under Vision 2030.

“Vast transformational work is planned in Saudi Arabia, the GCC’s largest economy. Its Vision 2030 sets out a blueprint to shift the Saudi economy from its reliance on oil revenue and diversify into real estate, tourism and other sectors,” said Moody’s.

Bahrain and the UAE have progressed further along the diversification route than their GCC neighbours while Qatar and Oman have bold diversification plans under National Vision 2030 and Vision 2040, respectively.

Meanwhile, the GCC region’s top lenders are increasingly keen to compete beyond their domestic markets. With the backing from some of the world’s biggest wealth funds, banks in the region cannot hide their growing ambitions to dominate the global financial services industry.

Last year, FAB said it had targeted Standard Chartered but decided against a bid. However, analysts say a potential

operating environment for banks to grow their revenue organically forcing them to rely on acquisitions to pick up attractive customers and valuable assets.

“Newly merged entities will gain pricing power, enhancing their deposit-gathering ability and pushing up net interest income,” Moody’s analysts said while noting that M&A synergies will help to offset rising operating expenses and enhance already good levels of cost-efficiency.

ISLAMIC BANK MERGERS AND ACQUISITIONS IN THE GCC REGION ARE LIKELY TO INCREASE AS MANY ISLAMIC BANKS STILL LACK THE MARKET POSITION NEEDED TO COMPETE WITH LARGE ESTABLISHED PEERS, PARTICULARLY IN OVERBANKED MARKETS SUCH AS THE UAE

– Fitch Ratings

bid confirms the UAE lender’s takeover appeal, given its wide emerging-market footprint, improving efficiencies and supportive capital return.

SNB invested as much as $1.5 billion in Credit Suisse Group in October 2022 for a stake of up to 9.9%. However, the Saudi bank’s stake crashed to about a 0.5% stake in UBS Group after the latter completed its merger with Credit Suisse in July 2023.

M&A deals will allow well-established GCC banks to expand their global footprint and start competing on an international scale. The region’s geographic positioning between Europe, Africa and Asia provides opportunities for local banks to expand their businesses by collaborating with international players.

Driving synergies

Globally, a combination of high inflation, elevated interest rates and a slowing global economy has created a challenging

Oman’s Sohar International Bank completed its tie-up with HSBC Bank in August 2023 – creating a banking giant with $17.4 billion (OMR 6.7 billion) in 2023. However, Sohar International and Omani Islamic lender Bank Nizwa said last December that they were suspending merger talks “for the time being.”

Abu Dhabi wealth fund Mubadala Investment Company sold its 7.6% stake in Abu Dhabi Islamic Bank to Emirates International Investment Company (EIIC), a unit of investment firm National Holding, in May 2023. EIIC was already ADIB’s top shareholder before the acquisition and the deal took its holding in the Shariahcompliant bank to 47%.

Conversely, ADIB acquired 9.6 million shares in its Egyptian unit, ADIB Egypt, from the National Investment Bank in January 2023. The shares, which are equivalent to 2.4% of ADIB Egypt’s share capital, took the Abu Dhabi lender’s total shareholding to 52.61%.

The structural characteristics of banks in the Arabian Gulf region are a diverse mix of conventional and Islamic entities, as well as being both retailfocused and corporate-aligned in their stance, which from a potential future merger perspective will offer valueadded consolidations.

Meanwhile, bank consolidations in the GCC region have so far largely involved common shareholders –normally the government and related entities – reorganising bank assets under a single entity to achieve a leaner cost structure and increase profits in a highly competitive and overcrowded banking market.

S&P Global said that the first wave of M&A was driven by shareholders’ desire to reorganise their assets, including the tie-up between National Commercial Bank and Samba Financial Group – a deal that involved a common shareholder, the Saudi Arabian government through the Public Investment Fund.

Similarly, the Qatari government was the ultimate shareholder in Masraf Al Rayan and Al Khalij Commercial Bank through the Qatar Investment Authority and other state-owned entities, according to Moody’s.

Going forward, the concentration of bank ownership in the GCC is expected to facilitate mergers between the region’s banks to increase profitability and strengthen financial fundamentals.

GCC BANKS’ SHAREHOLDER STRUCTURE, CHARACTERISED BY A CONCENTRATED POOL OF STATE-LINKED ENTITIES AND GROUPS, FACILITATES TIE-UPS BETWEEN LENDERS AND MEANS THAT THIS M&A PROCESS IS SET TO CONTINUE

– Moody’s

Boosting Islamic finance

The increasing demand for financial products that align with the norms of Islamic law coupled with proactive government legislation and M&A have supported the growth of Islamic banking assets.

“Islamic bank mergers and acquisitions in the GCC region are likely to increase as many Islamic banks still lack the market position needed to compete with large established peers, particularly in overbanked markets such as the UAE,” said Fitch Ratings.

Shariah-compliant lenders are particularly well-positioned for consolidation as they tend to be smaller in scale and less able to compete with the larger conventional banks. Over the years, all tie-ups in the GCC involved at least one Islamic bank.

AFTER SEVERAL YEARS OF DESIGN AND PLANNING, AMBITIOUS ECONOMIC DIVERSIFICATION INITIATIVES, ESPECIALLY IN SAUDI ARABIA, ARE REACHING THE CONSTRUCTION STAGE. THE REGION’S BANKS WILL NEED TO BE LARGER TO SUPPORT THESE PROJECTS

– Moody’s

Kuwait Finance House (KFH) closed its four-year acquisition of Ahli United Bank (AUB) for $11.6 billion – a rare cross-border merger that made KFH the secondlargest Islamic bank globally by assets behind Al Rajhi Bank.

Fitch said the acquisition of AUB was a major boost to Bahrain’s Islamic banking sector as KFH is set to convert AUB and its subsidiaries into fully Shariah-compliant banks. “The expansion in Islamic banks’ domestic market share (end-2023: 42%; end-2022: 38.4%) is partly due to AUB’s ongoing conversion into an Islamic bank after its acquisition by KFH.”

While organic growth capacity remains ample for Islamic banks, the inorganic expansion will remain a recurring credit theme, particularly in the Gulf region where bank consolidation continues.

The increase in the number of conventional banks consolidating with Shariah-compliant entities demonstrates the attractiveness of Islamic finance, which according to analysts advances profitability and new business opportunities to purely conventional franchises.

M&A will support the creation of Islamic entities with higher deposit-gathering capacity and improved profitability and efficiency, better positioning them for long-term growth. Further consolidation in the GCC banking sector is expected to create revenue synergies as greater market share translates into higher growth opportunities.

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THE GCC:

An M&A Powerhouse Fuelling Regional Growth and Diversification

Vijay Valecha Chief Investment Officer, Century Financial provides a comprehensive overview of the active M&A scene, with robust performance contributing to the region’s attractiveness to investors

The GCC region, once primarily associated with its oil wealth, is now emerging as a dominant force in the global M&A landscape. The GCC economies have demonstrated remarkable resilience in the face of potential global slowdowns. Unlike other major economies grappling with high interest rates and recessionary fears, the GCC & MENA has witnessed a healthy 4% increase in M&A activity, reaching a staggering $86 billion in 2023. This robust performance underscores the region’s attractiveness for foreign direct investments (FDI), private equity investments and sovereign wealth funds.

The Allure of the UAE: A Haven for Investors

The UAE has emerged as the leader in M&A activity in the GCC region, supported by its investor-friendly environment. With an impressive 77 completed deals in 2023, the UAE is the preferred choice for international investors. This dominance can be attributed to various factors,

including favourable government policies that actively promote deal flow and foreign direct investment. The UAE’s efficient legal framework, governed by the Commercial Companies Law and overseen by the Ministry of Economy, ensures transparency and security

throughout the M&A process, attracting investors seeking stable and transparent deal environments. Additionally, the introduction of Federal Decree-Law No. 36 of 2023, which mandates merger control filings, strengthens the regulatory landscape and promotes fair market competition, safeguarding the interests of all stakeholders involved in M&A transactions..

The Rise of Saudi Arabia: A Powerhouse in the GCC M&A Landscape

Saudi Arabia has emerged as a major force within the GCC’s M&A landscape, witnessing a remarkable 125% year-onyear increase in deal value to over $23.8 billion in 2022. This surge signifies the Kingdom’s growing attractiveness for M&A activity. The Saudi Public Investment Fund (PIF) plays a pivotal role, driving both domestic and international deals. PIF’s strategic acquisitions, like the $4.9 billion purchase of US mobile games developer Scopely by PIF-owned Savvy Games Group, highlights its focus on high-growth sectors and global expansion. Moreover, Saudi Arabia is actively leveraging M&A to achieve its Vision 2030 goals of economic diversification. The $3.3 billion acquisition of a stake in Saudi Iron and Steel Company by a consortium consisting of PIF and SABIC exemplifies this strategy. With strong government support, ongoing economic reforms and substantial liquidity, Saudi Arabia is

Vijay Valecha, Chief Investment Officer, Century Financial

poised to witness continued growth in M&A activity, solidifying its position as a key player in the GCC and on the global M&A stage.

Landmark Deals: A Glimpse into Strategic Priorities

Several high-profile transactions in 2023 exemplified the diversity and scale of M&A activity within the GCC:

Q Holding’s $7 Billion Mega-Merger: This landmark deal, involving entities under ADQ Real Estate, Hospitality Investments and IHC Capital Holding, reflects a strategic shift towards creating regional powerhouses that can compete on a global scale. It signifies a move away from fragmented entities and towards consolidated industry leaders.

Jazan IGCC Plant Acquisition: The Jazan Integrated Gasification and Power Company’s $4.8 billion acquisition of the Jazan IGCC plant from Saudi Aramco underscored the continued importance of the energy sector, while hinting at potential consolidation and optimisation within the industry.

PIF and SABIC Invest in Saudi Iron & Steel: The $3.3 billion purchase of shares in Saudi Iron and Steel Company by a consortium consisting of the Saudi Public Investment Fund (PIF) and Saudi Basic Industries Corporation (SABIC) highlighted the strategic focus on industrial development within the GCC. This deal signifies the state’s role in driving economic diversification through targeted investments.

Sectoral Trends: A Focus on Innovation and Efficiency

Looking ahead, three sectors are poised for a surge in M&A activity, driven by specific regional requirements. The healthcare sector is expected to experience significant consolidation and investment due to the growing demand for high-quality healthcare services and advancements in medical technology and telemedicine. The technology sector, crucial to the GCC’s economic diversification, will see

increased M&A as companies seek to acquire complementary skills and expertise for their digital transformation initiatives. Areas like artificial intelligence, blockchain and the internet of things (IoT) are anticipated to witness notable deal flow. Additionally, the logistics sector will see heightened M&A activity as the need for efficient logistics solutions to support regional and international trade grows. Companies are striving to consolidate and expand their operations, creating comprehensive platforms to cater to diverse customer needs throughout the region.

Global M&A Trends Shaping the Region

Two significant trends observed in the global M&A landscape are also making their impact felt in the GCC region. Firstly, cross-border deals are on the rise, driven by the need for sector consolidation and the pursuit of international partnerships for ambitious projects. This trend highlights the increasing interconnectedness of the GCC economies and their growing influence on the global M&A stage. Secondly, the rise of private equity is reshaping the M&A landscape, emerging as the region’s fastest-growing asset class. Private equity investments are fuelling the surge in M&A activity, reflecting the growing confidence of private investors in the region’s long-term potential. These firms are actively deploying capital across diverse sectors, providing an alternative financing source for M&A transactions in the GCC.

Diversification as a Mitigating Strategy

Geopolitical circumstances in the region can undoubtedly impact M&A activity. However, the GCC countries are proactively mitigating these risks by pursuing international deals through state-led entities. These deals form part of a broader economic diversification strategy to lessen reliance on oil revenues. Sovereign wealth funds,

such as PIF, Mubadala and ADIA, are playing a prominent role in driving international M&A activity across diverse sectors, including telecommunications, renewables and gaming. This strategic use of M&A allows the GCC to develop top-tier global companies and expand its economic reach, even amidst geopolitical challenges and sluggish growth in other parts of the world.

The Potential Influence of Activist Investors

As financing markets return to favourable conditions globally and regionally, activist investors may play a more significant role in M&A activity. Activist investors seek to maximize shareholder value by actively engaging with companies to influence their strategic direction. With improving financing conditions, activist investors may find opportunities to acquire stakes in listed companies and advocate for changes that could lead to private ownership. This could potentially lead to an increase in take-private transactions within the GCC region.

The Future of M&A in the GCC

In the pursuit of economic diversification, the GCC region is anticipated to maintain a strong focus on innovation and technology, leading to robust M&A activity in sectors such as healthcare, technology and logistics. Companies will actively engage in M&A transactions to acquire advanced technologies and expertise, thereby enhancing their competitive edge. Cross-border deals are expected to persist as GCC companies seek international partnerships and expansion opportunities, further integrating the region into the global M&A landscape. Private equity firms will continue to play a significant role in the M&A market, offering alternative financing options and driving deal flow across various sectors. Additionally, sovereign wealth funds are likely to strategically utilise M&A as part of the broader economic diversification strategy, contributing to international M&A activity in the GCC.

Open Day

The industry shaping event, bringing together the leadership of the UAE’s major banks, the ‘Open Banking and Beyond Summit,’ hosted by GSS - Global Software Solutions Group, in partnership with MEA Finance and held on the 8th of March 2024 at the Jumeirah Mina A’Salam Hotel, defined the path for the implementation of Open Banking in the region

The banking sector is at a turning point and the future of the industry will depend on its ability to innovate. To thrive, banks in the GCC region are reinventing themselves, focusing on businesses where they can achieve and extend market leadership in the new digital world. With customers demanding more from their banking experiences, financial institutions are upping their game and delivering stronger customer experiences. Open Banking holds promising potential to positively impact the GCC banking sector, as demonstrated by its successful implementations in other regions.

Open Banking involves the use of Application Programming Interfaces (APIs) to share consumers’ financial data with third parties that offer financial products and services. The trend is popular with consumers and financial institutions alike.

Visa Navigate said while Europe and the US were the first to adopt it on a large scale, the Middle East and Africa region is starting to catch up. The latest data shows that Africa and the Middle East markets are expected to show the biggest growth in Open Banking from 2021 to 2026, at CAGRs of 34.8% and 31.3%, respectively.

Open Banking offers financial institutions an unprecedented opportunity to meet customers’ evolving needs more holistically and become even more relevant in consumers’ lives, according to Deloitte.

Earlier in March, GSS - Global Software Solutions Group, a UAE based enterprise solution provider to banking and financial services and MEA Finance hosted an exclusive Open Banking summit in Dubai under the theme: The new age of banking powered by technology and innovative partnerships, heralding new opportunities for all.

The summit, which was attended by top banking and finance leaders and professionals from across the Middle East region’s financial services sector, explored the development of Open Banking in the UAE and the wider region as well as the opportunities it will bring

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for customers and clients, banks and financial institutions.

Open Banking is revolutionising the financial services sector at pace and scale. With the lines between financial technology (fintech) players, technology giants and incumbents continuing to blur, banks will increasingly be competing on technology-driven innovations, and their ability to connect with digitally savvy customers.

The event was officially opened with a welcome note from Mahmoud AbuEbeid, Chief Executive Officer and Board Member at GSS, the host of the summit, who then introduced Jamal Saleh, Director General of the UAE Banks Federation, who said in his welcome remarks, that country’s banking

WE ARE WORKING WITH THE CENTRAL BANK OF THE UAE, OUR VERY ACTIVE REGULATOR ON SO MANY INITIATIVES, TO PUT THE FOUNDATION OF OPEN FINANCE TO ENSURE SUCCESSFUL IMPLEMENTATION OF THE INITIATIVE

– Jamal Saleh

federation has commenced work on open banking implementation countrywide in partnership with the central bank.

“We are working with the Central Bank of the UAE (CBUAE), our very active regulator on so many initiatives to put the foundation of open finance to ensure successful implementation of the initiative,” said Saleh.

“

One of the recent developments was the establishment of Sanadak, the first Ombudsman Unit catering to consumers of Licensed Financial Institutions and Insurance Companies in the Middle East and North Africa region.”

Saleh said the pioneering initiative by the CBUAE marks a crucial step towards ensuring consumer protection and nurturing trust within the financial services sector.

He said the UBF is working with the banking system and the regulator to measure the rate of customer satisfaction in the UAE banking sector.

“The UAE ranked second globally and first in Asia, Africa, and Europe in consumer trust in banks in 2022, and the banking sector remains the most trusted sector in the country – thanks to CBUAE’s guidance to ensure continued advancement of the sector to meet

the growing needs and expectations of customers,” added Saleh.

“What is Open Banking to everybody or to the country?,” Suhail Bin Tarraf, the Group Chief Operating Officer at First Abu Dhabi Bank (FAB) opened his thematic address by posing a question.

Bin Tarraf said though the UAE is a young country and has one of the most trusted banking systems globally.

“Open Banking is taking off globally, with countries such as the UK, the US, Brazil, Japan, Australia, Singapore and Hong Kong all recognised as first movers in this space,” Bin Tarraf said while noting that the UAE will not copy the marketdriven or regulatory approach being applied in any of the above jurisdictions, but it will create an Open Banking system that suits the country’s requirements.

With the Middle East’s Open Banking market forecasted to soar to a record $1.17 billion in 2024, the region is fast emerging as a global open-banking microcosm, with European-style regulatory-driven approaches rubbing shoulders with American-style market-led approaches.

By embracing Open Banking frameworks and APIs, banks in the UAE and the wider Middle East region can create ecosystems that enable seamless integration of services, enhance customer experiences and drive innovation across the industry.

Open Banking in the Middle East

Open Banking holds the potential to create an integrated financial ecosystem

by enabling data-sharing and improving financial transparency.

The innovative technology is projected to revolutionise the GCC region’s payments ecosystem and it is significantly fueling the growth of the digital economy as it makes payments easier and more transparent.

Moderated by Alaa Al Rousan , Senior Account Director at Swift, the Open Banking Opportunities in the UAE and MENA panel explored the region’s readiness for Open Banking

and the opportunities that the innovative technology presents to its financial services ecosystem.

The discussion had the participation of Mahmoud AbuEbeid , Co-founder & CEO of GSS Group; Jan Pilbauer, CEO of Al Etihad Payments; Saud Al Dhawyani, Chief Platforms Officer, Emirates NBD; Anshu Sharma Raja , Chief Transformation Technology Operations Officer, Standard Chartered Bank and Sandeep Dhawan , Regional Head of Product, JP Morgan.

Al Rousan opened the panel by asking Al Etihad Payments’ Pilbauer what opportunities open banking presents to the UAE and what challenges will the innovative technology solve.

“Al Etihad Payments is pushing an open finance initiative in partnership with the UAE central bank and we are a collaborative company that requires support from all financial institutions,” Pilbauer said, adding that one of the payments firm’s focuses is to drive the growth of digital economy in the UAE.

“The key objective of Open Banking – and we plan to push it even further into open finance – is the concept of consumer data. We want customer data, both consumers and businesses, to be sharable more easily with third parties.”

With more GCC countries adopting Open Banking regulations, crossborder collaboration to align national approaches can advance integration in the region’s financial sector while bolstering the Middle East’s positioning as a global hub for fintech investment and talent.

“The implementation of Open Banking in the UAE and the wider region is an opportunity for organisations of all sizes – big or small – because we are all in business to serve our customers’ growing and demands,” Raja said, adding that “the emerging use cases right now are imagined but very soon to become reality.”

“This is an opportunity and at Standard Chartered Bank we have

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started to monetise Open Banking as the pace at which the initiative is being explored in Southeast Asia and the GCC has reached an advanced stage,” added Raja.

The notable initiatives that are being implemented in the Gulf region include a European-style regulation-driven

issued its Open Banking rules in 2018, followed by a framework with guidelines on data sharing and governance in late 2020.

Following the issuance of its Open Banking policy in January 2021, Saudi Central Bank (SAMA) published its full open banking framework in November 2022, with an initial focus on account

OPEN BANKING CAN CREATE INNOVATION BY ALLOWING THIRD PARTY

DEVELOPERS TO DEVELOP FINANCIAL PRODUCTS, AND THIS WILL CREATE A DIVERSITY AND RESILIENCE IN THE FINANCIAL ECOSYSTEM WHICH WILL ENHANCE COMPETITION THAT WILL LEAD TO LOWER DOWN THE PRICES AND ENHANCE CUSTOMER EXPERIENCE

– Mahmoud AbuEbeid

approach in Bahrain and an Americanstyle market-driven approach in the UAE that is being spearheaded by the Abu Dhabi Global Market and Dubai International Finance Centre.

Saudi Arabia’s market-driven initiatives have shifted toward a more formal regulatory framework.

Bahrain was the first GCC state to mandate Open Banking. The kingdom

information services to be followed in the second phase by a focus on payment initiation services.

The central bank introduced an ‘Open Banking Lab’ in December 2022 to speed up the development of open banking in Saudi Arabia. The ‘Lab’ constitutes a ‘technical testing environment’ to enable established banks and fintech companies the opportunity to ‘develop, test and

certify’ open banking services to ensure compatibility with the framework.

From a different perspective, Emirates NBD’s Al Dhawyani said there is always a threat that arises with every opportunity.

“The threat that comes with Open Banking is going to hit incumbent banks and financial institutions that are not taking digitalisation seriously. The opportunity here is for digital-savvy banks and for financial institutions that are investing heavily in their technology and their digital experience,” added Al Dhawyani.

He further highlighted that with Open Banking, new players will join the financial ecosystem. “We are going to change the level of play across the entire financial services ecosystem and banks would have a choice whether to invest vertically, front to back, on their experience and execution engine.”

Dhawan weighed in saying with the implementation of Open Banking, there is an opportunity for banks that seek to be nimble, expand their market and aim to create new revenue streams.

“To do something much bigger than what incumbent banks have been doing

is a national vision or a global vision that is driving change in the financial service sector and its impact will go beyond banking to include open finance and open economy,” said Dhawan.

“Open banking can foster innovation by allowing third-party developers to develop financial products, and this will create diversity and resilience in the financial ecosystem, which will enhance competition and enhance customer experience,” AbuEbeid explained.

He further highlighted that the innovative technology boosts financial inclusion and data sharing

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can create a comprehensive credit reporting system.

Open Banking has the potential to revolutionise the GCC region’s payments ecosystem and is playing a significant role in the rise of the digital economy as it makes payments easier and more transparent.

Beyond Open Banking

Open Banking is coming of age and banking technology is creating multiple revenue opportunities for banks. It has the potential to reshape the Middle East financial services landscape and several financial hubs in the Gulf region have made considerable progress in this space.

The discussion around banking as a service and embedded finance was moderated by Saleem Ahmed, COO of GSS Group.

The panel had the participation of Ramana Kumar, the Chief Executive Officer of Magnati; Srinivasan Sampath, Acting Group CTO at First Abu Dhabi Bank; Mohammed Wassim Khayata , the Chief Executive Officer at Al Maryah

THE KEY OBJECTIVE OF OPEN BANKING – AND WE PLAN TO PUSH IT EVEN FURTHER INTO OPEN FINANCE – IS THE CONCEPT OF CONSUMER DATA. WE WANT CUSTOMER DATA, BOTH CONSUMERS AND BUSINESSES, TO BE SHARABLE MORE EASILY WITH THIRD PARTIES

– Jan Pilbauer

Community Bank; TK Raman, the Chief Executive Officer at Finance House and Hisham Hammoud, the Chief Executive Officer at Aafaq Islamic Finance.

From a digital banking perspective, Khayata said Banking-as-a-service (BaaS), embedded finance and open finance provide a platform that offers a secured connection of financial institution systems to accredited third parties.

He stressed that banking customers expect banks to deliver advanced experience and the industry is getting

competitive as neobanks or digital exclusive banks such as Monzo and Revolut have exceeded customer expectations when it comes to convenience, innovation and simplicity.

“Open Banking is making the banking sector more competitive and if incumbents do not capture the opportunity of open finance and the efficiency of digital banking, changing not only the front end but also the backend, customers will slowly move to the embedded finance platforms,” said Khayata.

BaaS, embedded finance, marketplace ecosystems and banking super apps are all different implementations of open finance, and they are seeing active experimentation and investments by banks and non-banks.

Kumar said the movement away from rigid monolith architectures to API banking has significantly transformed the financial service sector over the years.

Raman weighed in saying banking services are necessary, but banks are not. “Open banking has opened up two different paths for insurance firms, banks and investment companies,” he said.

“Many fintech companies can successfully integrate with the banks or financial institutions to deliver superior products and services. Fintechs have the technology and incumbents have the capital, liquidity and lending management principles as well as regulatory compliance,” said Raman.

BaaS is reconfiguring the banking value chain by enabling third-party distributors to offer banking products and services. Incumbent banks

and other financial institutions are integrating fintech or other financial service vendor products into the banking journey while non-financial companies are embedding banking products into their services.

Aafaq’s Hammoud said open banking can help banks augment their financial services and products.

Given that the traditional banking model is based on expensive legacy technology and operations, BaaS allows financial institutions to reach a greater number of customers at a lower cost.

From a technology perspective, Sampath said that open finance consists of two things – contribution of data and consumption of data – and this is the crux of the open banking platform.

“What data are you going to contribute and what data are you going to consume? And depending on the size of the organisation, are you a big contributor or are you a big consumer?” he said.

Sharing of data through a secured API layer and connectivity is something critical from a technological

THE IMPLEMENTATION OF OPEN BANKING IN THE UAE AND THE WIDER REGION IS AN OPPORTUNITY FOR ORGANISATIONS OF ALL SIZES – BIG OR SMALL – BECAUSE WE ARE ALL IN BUSINESS TO SERVE OUR CUSTOMERS’ GROWING AND DEMANDS

– Anshu Sharma Raja

perspective, Sampath said, adding that banks are significantly investing in open banking.

A study by global consultancy firm Oliver Wyman projected that the cost of acquiring a customer is around $100 to $200. However, the report revealed that with a new, greenfield BaaS technology stack, the cost can range between $5 and $35.

BaaS is a clear opportunity for incumbents to capture new revenue growth at a low cost. Its scalable and agility make it particularly suitable for traditional banks tapping new markets.

“ From the UAE perspective, we have a central API hub which probably takes much of the load from the banks because the central API has the basic security checks and controls to make sure that the customers and third-party partners are connecting to the platform with all complexities undertaken,” added Sampath.

Furthermore, BaaS allows financial institutions to offer white-label banking services (embedded finance) to promote products and services to a broader market.

Customers’ evolving expectations and growing demands are a primary driver of this new era of embedded finance. Embedded finance covers many domains, but digital payments are the biggest beneficiary of the new proposition.

Going forward, Magnati’s Kumar said that fintech companies need to move away from customer experience-focused business models while cautioning that firms that “only focused on customer experience will die.”

“There are many digital and traditional banks as well as many wallets. All financial institutions revolve around the same bank account, debit card, credit card and auto loan mortgage and there are no new products that we have brought to the market in the past 50 years,” he said, adding that the industry needs to start looking at what this means amid a proliferation of new value-added services into the market.

With the increasing integration of savings, credit, insurance and investing tools into non-financial apps or websites, the market for embedded finance applications is projected to grow fivefold, from $54.3 billion in 2022 to $248.4 billion by 2032, according to a study by PwC.

Open API platforms and bespoke frontend customer journey technologies are making it faster and easier for fintech companies to partner with brands. Retailers, software companies, online marketplaces and e-commerce platforms in the UAE are steadily embedding

financial products and services into their end-to-end customer journeys.

Banking customers no longer want mobile apps that do not go beyond transactional service and payment processing instead they are demanding the same interactive and intuitive experiences they get from other digital services like super apps.

From a regulatory perspective, Hammoud argued that most financial service providers use regulators as an excuse, but instead, regulators are enablers of innovation.

BaaS allows financial institutions to monetise their banking stacks such as data, capabilities and infrastructure by seamlessly integrating financial services and products into other kinds of customer activities, typically on non-financial digital platforms.

Consumers are increasingly using these platforms to access services such as e-commerce platforms, retail and lifestyle services.

Banks and financial institutions in the UAE can meet rising customer expectations by focusing on ‘Open Banking’ to offer intelligent propositions and smart servicing that can seamlessly embed in partner ecosystems. To thrive in the AI-powered digital age, modern banks should develop effortless customer experiences instead of focusing on technology for its own sake.

The financial services sector is no alien to this, and BaaS is a clear opportunity for banks in the UAE and the wider Middle East region to reimagine customer engagement. Banks can unlock new value through better efficiency, expanded market access and greater customer lifetime value.

Open Banking powered experience

The evolution of the financial services sector toward invisible, interconnected customer experiences is not one that banks will dictate, instead, it will be largely

driven by innovation that looks to financial services as an enabler.

The Open Banking Technology & Customer Experience panel was moderated by Michael R. Hartmann, the Head of Open Banking & Open Finance at Abu Dhabi Commercial Bank.

It had the participation of Biju Suresh Babu, Managing Director of Banking & Financial Services at Fiorano; Gautam Dutta , MD & Head of Global Cash Product Management & Innovation at

The confluence of changing customer demands together with pressure to reduce costs and increase efficiency is reshaping the banking industry. Over the years, customer experience has emerged as a key differentiator across businesses in an era of digital disruption and changing consumer expectations. Hartman opened the panel by noting that Open Banking is the in-thing and different markets are pacing at varying rates throughout its implementation.

THE THREAT THAT COMES WITH OPEN BANKING IS GOING TO HIT INCUMBENT BANKS AND FINANCIAL INSTITUTIONS THAT ARE NOT TAKING DIGITALISATION SERIOUSLY. THE OPPORTUNITY HERE IS FOR DIGITAL-SAVVY BANKS AND FOR FINANCIAL INSTITUTIONS THAT ARE INVESTING HEAVILY IN THEIR TECHNOLOGY AND THEIR DIGITAL EXPERIENCE

– Saud Al Dhawyani

FAB; Mike Nagavalli, Managing Director Head of Channels And Innovation at FAB; Mohamad Najmeddine, Head of Digital Banking and API, Middle East Central, Asia and Africa at Citi and David Kelly, the Head of Financial Infrastructure Transformation at Commercial Bank of Dubai.

To seize the growth opportunities, banks in the UAE should prioritise the modernisation of self-service capabilities by tapping into Open Banking – which helps financial institutions complement the lifestyles of their customers.

Taking a leaf out of Europe’s book, Open Banking allows banking customers

to get the service that they require, and they do not need to do paperwork or manually type forms when using banking services.

It was highlighted that the implementation of Open Banking in the UAE is different from PSD2 and Open Banking in Europe and the UK, respectively, because banks in the Emirates have API infrastructures, they are leveraging the cloud and have bestin-class feature-rich digital apps.

By reimagining customer engagement, banks can unlock new value through better efficiency, expanded market access and greater customer lifetime value, according to McKinsey.

Najmeddine weighed in saying Open Banking is more about collaboration between multiple ecosystems and multiple parties, be it fintech firms, mobile application developers or the government.

“The role that we are missing when it comes to Open Banking or Open finance is how can we link the whole ecosystem together,” Najmeddine said, adding that the implementation of Open Banking is not a task mandated to banks or fintechs but it is a collaboration across the entire ecosystem.

Open banking technology allows fintech companies – with consent – to access customers’ or companies’ financial data through software protocols known as API interfaces. Traditionally, such financial data was known only to the customers’ bank(s).

From a corporate banking perspective, Nagavalli said APIs have been around for

as many as 20 years. “There are internal or private APIs and then the public APIs. So, we’ve been using private APIs for a long time with our only internal systems to communicate with each other using APIs,” Nagavalli said.

“What we are trying to do now is taking the private APIs and make them external,” he added.

The innovative technology has the potential to create an integrated financial ecosystem by enabling data-sharing and improving financial transparency. It also allows the seamless movement of funds through integrated payment solutions and promotes collaboration between the different players in the financial sector.

From a finance management perspective, Dutta said there are a couple of Open Banking initiatives that the UAE central bank has prioritised. “Looking at the CBUAE’s Open Banking use cases, the apex bank has personal

financial management, business financial management and payment services including recurring payments, variable recurring payments, single payments and bulk payments,” added Dutta.

Commercial Bank of Dubai’s Kelly said the way Open Banking is being implemented in the UAE is different from other markets as the CBUAE is providing a central API hub from where third parties can access data rather than directly from the banks.

“

There are obvious benefits for commercial banks. The operational overhead is greatly lessened depending on how much the UAE central bank takes on and that’s a big win for the commercial banks,” added Kelly.

The Open Banking ecosystem cooperation allows for the development of new financial products and services that focus on customers’ needs and augment customer experience and loyalty in the process.

Babu concurred with Kelly, saying central infrastructure gives the central bank oversight over the products and services being offered by banks.

He highlighted that APIs are at the core of Open Banking. “APIs are the road to innovation and eventually we will have a combination of central bank-backed mandatory APIs in the UAE and then there are going to be API platforms set up by banks to support their innovation journey,” said Babu.

Going forward, Open banking can provide a path for customised financial solutions by allowing financial institutions and fintech firms to collaborate on curating services that meet unique consumer needs. Finance professionals who attended the GSS and MEA Finance agreed while Open Banking stands to benefit end users, foster innovations and create new areas of competition between banks and nonbanks, it is ushering in an entirely new financial services ecosystem.

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The Future is Automated

Over the years that Amol Bahuguna and Adil Belhouari have spent working in the Middle East financial markets, they have seen how the application of technology in the sector has changed the landscape, bringing many improvements and playing a key role in enhancing the status of the region as a burgeoning global financial hub

Having spent over a decade and half in financial sector, Adil Belhouari and I have witnessed the development of the technology landscape and the profound impact of automation in banking across Middle East region as being nothing short of spectacular. As the region steers into the future, it becomes increasingly evident that automation will play a pivotal role in transforming the way financial institutions operate and serve their customers. As technological advancements continue to reshape the industry, Adil and I explored the latest technology trends, such as Artificial Intelligence and the regional nuances that contribute to the evolution of banking in this dynamic landscape that are steering us towards a future characterised by increased efficiency and innovation. We believe the future is automated.

The fintech revolution continues to reshape the financial sector globally. In the Middle East, countries such as the UAE and Saudi Arabia have witnessed a surge in fintech adoption across financial industry, from new, home-grown fintech’s to global fintech businesses. Oliver Wyman reports1 that the ongoing evolution has also witnessed an increase in the use of digital wallets, in decentralised finance (DeFi), contactless payments and blockchain solutions which are all gaining traction,

Amol Bahuguna and Adil Belhouari

reflecting a concerted effort to automate and modernise financial services in the region, creating a user-friendly financial ecosystem. Recent reports highlight the persistent growth and influence of fintech on traditional banking structures. In 2023, companies like Plaid and Adyen have been instrumental in revolutionising payment systems, offering users enhanced flexibility and convenience.

ARTIFICIAL INTELLIGENCE (AI) AND MACHINE LEARNING (ML) APPLICATIONS IN BANKING HAVE WITNESSED SIGNIFICANT ADVANCEMENTS IN THE MIDDLE EAST

INDUSTRY STAKEHOLDERS AND REGULATORY BODIES ARE ACTIVELY ENGAGED IN SHAPING GUIDELINES THAT PROMOTE RESPONSIBLE AND ETHICAL IMPLEMENTATION OF THESE TECHNOLOGIES

PWC 2023 reports 2 emphasise the accelerated adoption of Robotic Process Automation (RPA) in banking operations in the Middle East. RPA solutions have evolved to automate complex tasks, ranging from customer onboarding to compliance procedures. This not only streamlines processes but also enhances scalability and resilience, enabling financial institutions to navigate dynamic market conditions with agility. In the Middle East, financial institutions are leveraging RPA to streamline back-

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office functions, enhance operational efficiency and meet the growing demand for seamless digital services. RPA involves deploying software robots to automate repetitive and rule-based tasks that were previously performed by humans. These tasks range from data entry and reconciliation to document verification and compliance checks. The regional focus on digital transformation is evident in the widespread adoption of RPA technologies.

Artificial Intelligence (AI) and Machine Learning (ML) applications in banking have witnessed significant advancements in the Middle East. These technologies have emerged as game changers in the financial industry. Recent reports from EY3 highlight ML’s role in real-time fraud detection, personalised financial advice, and risk management. The ability of ML algorithms to analyse vast datasets continues to drive data-driven decisionmaking, providing banks with valuable insights to optimise operational efficiency and enhance customer experiences. In customer service, chatbots powered by AI provide instant responses to inquiries, improving the overall customer experience. In addition, Natural Language Processing (NLP) enables these chatbots to understand and respond to user queries in a human like manner, enhancing communication efficiency.

The synergy between Fintech’s and new technologies like RPA, AI and ML have become even more pronounced in

1 https://www.oliverwyman.com/our-expertise/insights/2023/jul/global-fintech-adoption-index-2023.html

2 https://www.pwc.com/m1/en/publications/documents/banking-rpa-middle-east.pdf

3 https://www.ey.com/en_ae/banking-capital-markets/transforming-banking-with-ai-and-ml https://www.ey.com/ en_gl/financial-services/fintech-adoption-index

4 https://www3.weforum.org/docs/WEF_Future_of_Jobs_2023.pdf

2023, further catalysing the automation of banking processes. Fintech’s are increasingly integrating RPA to streamline backend operations, while ML algorithms contribute to advanced analytics and predictive modeling. This collaborative approach is fostering a more resilient and responsive financial ecosystem. The true power of automation in the financial industry lies in the integration of these technologies into holistic solutions.

As per World Economic Forum report4, there have been discussions surrounding the ethical use of AI. The need for robust cybersecurity measures and concerns about job displacement have gained prominence. Industry stakeholders and regulatory bodies are actively engaged in shaping guidelines that promote responsible and ethical implementation of these technologies. Looking ahead, the financial landscape in the Middle East is poised for further transformation in 2024 and beyond. Continued investments in new technologies are expected to drive innovation, enhance customer experiences and ensure the region remains at the forefront of global financial technology advancements.

As we navigate the automated future of banking, both Adil and I believe that the Middle East stands as a beacon of innovation, with convergence of new technologies and Fintech adoption. This convergence creates a comprehensive and interconnected ecosystem that maximises efficiency across the board. The Middle East region reflects a strategic commitment to digital transformation. The dynamic nature of the industry calls for continuous adaptation, ensuring that automation remains a driving force for positive change in the financial sector.

Generative AI presenting the next frontier TRANSFORMING FINANCE:

Many of us will have experienced this by now, a monotonous automated voice on the other end of the phone helping you with your banking needs like activating your credit card or making a transfer. A few years ago, that robotic voice would have been the cause of much frustration, resulting in you asking to speak to a human attendant. Today, that same robotic voice sounds almost as natural as a human customer representative and wastes no time in understanding your problem and helping you with a solution. Such innovation is one of many that we are seeing across the financial services industry, and they are all being driven by the latest developments in Generative AI technology.

Today, AI has helped usher in a new age of efficiency, personalisation and insight within the financial services industry. AI-driven chatbots have evolved from simple FAQanswering tools into intelligent virtual assistants that understand customer needs, provide personalised recommendations and process complex requests seamlessly. Sophisticated AI systems are helping to detect anomalies in payments, flag suspicious transactions in real-time and supporting financial institutions to mitigate losses and protect their customers from financial threats. Also, the ‘one-size fits all approach’ that banks tended to favour when it came to customer service seems to well and truly be a thing of the past, with AI helping to deliver bespoke levels of service for each and every type of customer. And with banks worldwide expected to spend an additional $31 billion on AI embedded in existing systems by 2025, it is clear that there is more innovation on the horizon.

The majority of this new age innovation will revolve around Generative AI which,

despite the technology still being in its infancy as many experts say, has seen an almost meteoric rise to deliver the next frontier in financial services. In fact, 43 percent of global financial services professionals have stated that they are already using it within their organisations. Furthermore, many financial services leaders who are already investing in Generative AI technologies noted that they expect to see their investments grow in the future: 67 percent of global finance executives confirmed budget allocation towards Generative AI technologies. The projected impact of this technology is such that reports have forecast it to deliver between $200 billion to $340 billion in economic impact across the global banking sector.

We are already seeing several leading institutions leverage the potential of Generative AI to not only tackle key challenges facing their organisations but also deliver exceptional experiences for their employees and customers. Emirates NBD, for example, is empowering its IT teams to leverage the advanced capabilities of Github Copilot X to improve their coding proficiency. The bank also deployed ChatGPT and Copilot for Microsoft 365 to support

its teams across various departments including Marketing, Legal, Compliance, Risk and Contact Centres to improve operational efficiency and deliver highly personalised customer experiences. Meanwhile, First Abu Dhabi Bank is driving innovation around generative AI, advanced analytics and other AI scenarios, through a dedicated Centre of Excellence, which will help bolster operations and deliver enhanced experiences to customers. The bank plans to unlock more value by adopting AI at every function within the organisation.

As the Generative AI landscape in the financial services sector continues to mature, Microsoft is well positioned to assist financial institutions of all sizes effectively leverage the latest developments in AI to set new benchmarks of excellence and drive innovation through its highly trusted Azure AI and Azure OpenAI solutions. Just recently, we announced the public preview of Microsoft Copilot for Finance, our newest Copilot offering designed to empower finance teams to spend less time on daily operational tasks and instead play a more strategic role within the business. Copilot for Finance also introduces several features to help finance professionals work more efficiently and effectively such as conducting a variance analysis using natural language prompts, automated data structure comparisons, guided troubleshooting to ensure data accuracy, and transforming raw data in Excel into presentation-ready visuals and reports which can be seamlessly shared through Outlook and Teams.

The potential of Generative AI in the financial services industry is vast. In the years to come, we can expect to see thrilling possibilities such as hyper-personalised insurance policies and financial news summaries tailored to a user’s exact needs, all delivered by a virtual AI assistant that also helps us make decisions that minimises risk and maximises value. The age of truly intelligent, data-driven and bespoke finance has dawned, and Generative AI is serving as a powerful catalyst, propelling the industry towards a more efficient, inclusive and secure future.

Ahmad El Dandachi, Enterprise Commercial Director at Microsoft UAE