MEA Finance - April-May 2022 by meafinance

April-May 2022

The Right Combination Anthony Habis Managing Director and Head of MEA Bank of New York Mellon

April-May 2022

The Right Combination Anthony Habis Managing Director and Head of MEA Bank of New York Mellon

10 Market Focus | 14 Insurance | 20 Roundtable Event | 36 Islamic Finance | 47 Mergers & Acquisitions

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In this issue...

his, the April/May issue of MEA Finance has Q2, 2022 as its’ natural habitat, and as you see, this timing is replete with the number 2 which in numerology represents coming together, combinations and partnerships. With partnerships in mind, from page 46 of this issue we examine M&A activity in the region, which is set to grow, “We increasingly see regional companies exploring M&A as a tool for growth and value creation” says JP Morgan’s Georges Massoud. And continuing with the theme of coming together, from page 20, is our coverage of leading figures from the realm of payments who recently gathered for the MEA Finance Payments Roundtable, hosted by Volante Technologies where, among the many panelists was Max Di Gregorio, Managing Director of Financial Services at Accenture, “A significant number of trends are impacting the business from a regulatory perspective, and we see a very dynamic environment, open banking, open data and open finance,”. The cover story in this issue, starting at page 32, features an interview with Anthony Habis, Managing Director - Head of Middle East and Africa for BNY Mellon who, in defining the region and the bank’s place here, highlights a powerful combination of the established with the future. From page 36 we look at the prospects Islamic Finance in the region, which is set to benefit from further digitisation, more capital markets activity and the natural affinity between Sharia finance and ESG concerns, “There is a strong overlap between Islamic Finance and ESG principles” points out Khurram Hilal, Chief Executive Officer (CEO) of Standard Chartered Saadiq. Insurance is covered from page 14. The market has been resilient in the face of recent challenges and enjoys good prospects for Takaful and growth through M&A activity but, lagging behind other parts of the financial industry, must face up to digitisation. Our regular features in this issue, Market Focus and Banking Technology, respectively look at the Kingdom of Saudi Arabia with an overview of the economy and the financial services industry, the linchpin of Crown Prince Mohammed’s economic diversification drive; and Rajashekara V. Maiya from Infosys Finacle, describes the role of CBDCs and the opportunities they bring for banks. The Opinion Piece this month is provided by George Hojeige, the CEO of Virtuzone, who in supplementing this issue’s focus on M&A, explains it is not just the preserve of large corporations, and that smaller businesses can benefit from it too. Finally, we hope you can combine with the time to enjoy reading this issue of MEA Finance and look forward to welcoming you to the annual coming together that is our Banking Technology Summit and Awards on 19th of May.

mea-finance.com

CONTENTS

MARKET NEWS

Saudi Real Estate Refinance Company (SRC) successfully closes its SAR 10 billion Domestic Sukuk Program

PARTNER CONTENT

Empowering Women to Take Control of Their Wealth

COUNTRY FOCUS

Saudi Arabia Means Business

INSURANCE

Emerging Stronger While Pivoting To Thrive

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

The Expanding Payments Universe

COVER STORY

The Right Combination

ISLAMIC FINANCE

MEA Finance WEB: www.mea-finance.com EMAIL: info@mea-finance.com PUBLISHED BY: Creative Middle East Media FZ LLE, 19th Floor, Creative Tower, Fujairah Creative City, PO Box 4422, Fujairah, UAE

Banking and Finance news in the MEA market

The Broadening Appeal of Islamic Finance

40 42 44

Meeting the Potential Positive Progression A Growth Trajectory

MERGERS & ACQUISITIONS

46 50 52

The Case for Consolidation

Increasing Activity Burgeoning M&A in the Islamic Finance Sector

BANKING TECHNOLOGY

CBDC, DLT, and cryptocurrency – the three formidable forces defining future digital economies

OPINION PIECE

Winning Combinations

LIFESTYLE

The Enhanced Audi A8 and S8 Make Regional Debut

20 36

46 54

56 58 mea-finance.com

MARKET NEWS

Saudi Real Estate Refinance Company (SRC) successfully closes its SAR 10 billion Domestic Sukuk Program

he Saudi Real Estate Refinance Company (SRC) announced it had successfully closed its 10 billion Saudi-Riyal denominated Sukuk program following the completion of the last series of SAR 4 billion issuance which was 1.8 times oversubscribed, despite volatile market conditions. The domestic Sukuk program, launched in March 2021 with the successful completion of the first series of SAR 4 billion (approx. USD 1.067 billion). The issuance offered in 7 and 10-year dual tenors to Saudi-based institutional investors was 2.15 times oversubscribed,

attracting an orderbook in excess of SAR 8 billion. The second tranche of SAR 2 billion (approx. USD 533 million) Sukuk was offered in December 2021 to Saudi institutional investors at a competitive fixed profit rate of 3.04%. The issuance received a significant positive reaction from the market and was 2.5 times oversubscribed. Fabrice Susini, CEO of SRC, wholly owned by the Public Investment Fund (PIF), said: “The market’s positive response to our SAR 10 billion domestic Sukuk program, as demonstrated in the series of oversubscribed issuances within 12 months from the offering of the first series, is a testament to the valuable trust investors have placed in SRC and their strong confidence in the Kingdom’s housing market and economy. Our main objective is to provide access to cheaper home financing loans for Saudi citizens while widening the borrowers base and, importantly, to maintain the stability and long-term resilience of the Saudi mortgage market through changing economic cycles. The funding SRC raised thus far enables us to advance these objectives and to expand our refinancing offering for home finance lenders while helping them to de-risk and protect their balance sheet and financial positions. It underpins our drive to establish a

Fabrice Susini, CEO of SRC

Banking and Finance news in the MEA market

robust and active secondary home financing market in the Kingdom which ultimately supports the efficiency and stability of the primary housing market. As the most active issuer of Sukuks in the domestic market, we will continue to work closely with our partners including the banks, originators, and lenders

SAR 4 BILLION SUKUK IS LAST IN SERIES OF OVERSUBSCRIBED ISSUANCES OVER TWELVE MONTHS as well as investors to regularly offer Sukuk program to assist with further stabilizing the Saudi mortgage market and accelerate home ownership in the Kingdom in line with Vision 2030 goals.” The successful completion of the domestic Sukuk program complements the objectives of the Financial Sector Development Program to deepen Saudi capital markets. The lead coordinator on the series offering was HSBC Saudi Arabia and the joint lead managers were AlJazira Capital, HSBC Saudi Arabia, Riyad Capital, and SNB Capital.

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PARTNER CONTENT

Empowering Women to Take Control of Their Wealth Women’s wealth in GCC countries is growing fast and many are seeking greater control of their assets. Arnaud Leclercq Partner Holding Privé and Head of New Markets at Swiss private bank Lombard Odier, shares his perspective on how attitudes are changing and reveals that his female clients are increasingly looking for a trusted long-term partner that can help them achieve greater financial autonomy

Banking and Finance news in the MEA market

ecent research1 indicates that women’s wealth is increasing in the GCC region. What are you seeing?

It’s well reported that women’s economic contribution is increasing. Thanks to a raft of social reforms and improving access to education across the region, our clients now include more and more highly educated women entrepreneurs and senior corporate executives, often in board-level positions. I’m also seeing them secure greater inheritance rights thanks to legal reforms across the region. Common to all is a growing desire to take greater control of their assets. However, while many of our clients are highly accomplished or educated in their respective fields, many feel they lack the knowledge to manage their own assets. For example, I had a recent conversation with one client who is a successful entrepreneur with a Master of Science degree from the University of Oxford. What she wants from us is a trusted long-term partner that she can rely on to help her increase her investment literacy and confidence.

How can the wealth management industry respond? Wealth managers first need to establish trust using a highly personalised, clientcentric approach tailored to a client’s specific needs. Some female clients feel more comfortable talking to female relationship managers. But our clients can also have different priorities to men and different approaches to investing. Many opt for long-term strategies strongly aligned to clear personal goals and a focus on capital preservation. My task is to show how they can protect their assets and achieve their goals through a portfolio of diversified, longterm investments.

Arnaud Leclercq, Partner Holding Privé and Head of New Markets, Lombard Odier

FOR OTHERS, SUSTAINABILITY HAS BECOME AN URGENT PRIORITY AND THEY WANT TO BETTER UNDERSTAND HOW THEY CAN INVEST IN A WAY THAT DRIVES REAL, MEASURABLE CHANGE

1. ‘Women in Wealth: Managing the Next Decade of Women’s Wealth’, Boston Consulting Group, 2020 2. ‘The Pathway to Inclusive Investment’, BNY Mellon Investment Management, 2021

In line with recent reports2, our clients often show a greater appetite for values-based or responsible investment approaches. For example, many choose Islamic investment strategies or those that are specifically designed to make a positive social or environmental impact. Philanthropic activities are very important to many of our clients and they want to know how they can direct their wealth to help poorer segments of society. For others, sustainability has become an urgent priority and they want to better understand how they can invest in a way that drives real, measurable change. Indeed, sustainability has climbed to the top of the policy agenda across the Arab world. The wealth management industry therefore needs to take the time to understand the specific goals of their clients by offering a more inclusive service built on trust. Why is Lombard Odier a bank of choice for women? Our size is core to our appeal. With over CHF 358bn assets under management, we have the scale and reach to offer tailored investment solutions, but we are also small enough to provide a very personal approach to client relationships. Although we are a Swiss private bank, we have been serving clients in GCC countries for 50 years from offices in Dubai and, more recently, Abu Dhabi. Consequently, we have a deep understanding of our clients’ needs in the region. We have been offering Islamic investment solutions, including our Shariah discretionary mandate since 2012. We were also one of the first firms to practice socially responsible investing and we have been incorporating ESG criteria into our investments since 1997. Lastly, we are a privately-owned partnership with a sole focus on wealth management. We do not run any investment banking activities, and we are one of the most stable and best capitalised banks in the world. mea-finance.com

DATA SECURITY COUNTRY FOCUS

Saudi Arabia Means Business The rally in oil prices has pushed crude above Saudi Arabia’s break-even level and the Gulf state said it expects to record a budget surplus of $23.99 billion this year after years of deficit

audi Arabia held celebrations on 22 Februar y 2022 to commemorate, for the first time, the foundation of the kingdom nearly 300 years ago. The anniversary marks the day Mohammed ibn Saud, founder of the first Saudi state, took over the emirate of Diriyah in 1727.

Since 2016, Saudi Arabia has undergone a breakneck transformation, restructuring and opening economic activities and rethinking the role of foreign investors under Crown Prince Mohammed bin Salman’s Vision 2030, the blueprint for his country’s future that aims to diversify the economy away from heavy reliance on oil revenues.

Banking and Finance news in the MEA market

The Gulf state’s efforts to diversify the economy are critical to sustainable growth and Moody’s indicated that the country’s credit rating could be upgraded if the country moves away from oil faster than planned. The International Monetary Fund (IMF) projected that Saudi Arabia will see 4.8% economic growth in 2022 from a 2.4% rebound last year after it contracted in 2020 due to the fallout from the dual shocks of COVID-19 and low oil prices. Crude oil prices, a major driver for the Saudi economy, have soared to their highest since 2014 in the first quarter of the year driven by escalating geopolitical tensions in the Middle East as well as the sanctions that were imposed by the US and its allies on Russia oil imports in March following the invasion of Ukraine. The rally in oil prices has pushed crude above Saudi Arabia’s break-even level. The Gulf state, which needs oil at about $72 a barrel to balance the books, said it expects to record a budget surplus of $23.99 billion this year after years of deficit.

Though Saudi Arabia is still reliant on oil and gas, which accounts for 80% of its total goods exports and total revenues, the government is diversifying the economy with a strong focus on foreign investment, tourism, technology and the financial services sectors. The government has unveiled several initiatives to spur growth in the non-oil economy including “Made in Saudi” and the new “Shareek” – a $1.3 trillion investment program to enhance the collaboration between the public and private sector. Meanwhile, Public Investment Fund (PIF), the driving force behind Saudi Arabia’s economic growth and diversification, plans to double its assets under management (AuM) to $1.07 trillion by 2025.

$400 million respectively. The creation of digital banks is part of a financial development program contained in Saudi Vision 2030. The Saudi Central Bank (SAMA) is also encouraging consolidation in the banking and insurance sectors to create stronger entities that can support the role the private sector plays in advancing the government’s economic diversification agenda. Moody’s said last December that regulatory measures and “giga-projects” in Saudi Arabia as part of its Vision 2030 will drive credit demand and raise the private-sector debt, thus supporting credit growth in 2022. Following the tie-up between the National Commercial Bank and Samba

Equity markets Saudi Arabia registered more listings than any of its oil-rich Gulf neighbours last year. State-backed companies in the Gulf state are stepping up efforts to boost Tadawul All Share Index (TASI) while supporting the governments’ economic diversification efforts. The record public offering by Aramco in 2019, which saw the world’s most valuable energy company raising nearly $30 billion, paved the way for more Saudi Arabian companies backed by the kingdom’s $580 billion wealth fund to take the lead in new listings on the Middle East’s biggest stock exchange. PIF-backed digital security firm Elm raised $820 million in an offering in Riyadh in February 2022. Saudi Tadawul

Financial matrix

Banking sector Saudi Arabia’s financial services industry is the linchpin of Crown Prince Mohammed’s economic diversification drive. A robust banking sector able to finance new industries is seen as key to efforts to boost the dynamism of the private sector and accelerate growth. The government launched a national development program in 2018 to increase the total size of financial assets to GDP ratio, boost the share of capital markets assets and raise SMEs’ bank financing. Saudi Arabia was relatively slow in transforming its sector compared to its Gulf neighbours, but the pandemic is forcing the Gulf state’s central bank to accelerate the licensing of digital banks, a trend that has taken off with the spread of financial technology in the Middle East. The Saudi cabinet approved the licensing of the country’s third digital bank, called D360 Bank, in February. The digital bank has a capital of $440 million and is backed by a Derayah Financial Company-led consortium and it counts the PIF as “one of its key investors.” Last June, the cabinet also approved the licensing of the country’s first digital banks STC Bank and Saudi Digital Bank, which have a capital of $667 million and

SAUDI ARABIA WILL REGISTER A 4.8% ECONOMIC GROWTH IN 2022 FROM A 2.4% REBOUND LAST YEAR AFTER IT CONTRACTED IN 2020 DUE TO THE FALLOUT FROM THE DUAL SHOCKS OF COVID-19 AND LOW OIL PRICES – International Monetary Fund

Financial Group into Saudi National Bank (SNB), a banking giant with $244 billion assets in 2021, the Saudi approved the tieup of the county’s two state-run pension and unemployment insurance funds in June 2021. Merging General Organization for Social Insurance and the Public Pension Agency is expected to create an entity with around $29 billion worth of local and foreign stocks, with stakes in the Gulf state’s top two lenders, SNB and Al Rajhi Bank. SAMA extended a deferred payment program to support private sector financing in March for another three months until June 2022 as part of measures to stem the impact of the pandemic on the economy.

Group, the owner and operator of the Gulf state’s bourse, divested a 30% stake last December to raise $1.01 billion via an IPO that was 121 times oversubscribed. “Saudi Arabia’s TASI was up for the sixth consecutive year in 2021 and recorded the second biggest return in the GCC during the year that reached 29.8%,” said Kamco Invest. Saudi Arabia’s prominent offerings in 2021 also include ACWA Power’s $1.2 billion flotation and the IPO of stc Group’s internet services unit, Arabian Internet and Communications Services Co., which raised around $966.4 million. Debt markets Saudi Arabia, which revised its forecast for this year’s budget deficit to 1.6% of mea-finance.com

foreign investment under Vision 2030. The structural reforms that are being introduced by the government are beginning to have a positive impact on the economy and non-oil growth is picking up. The Gulf state said last November that it had granted citizenship to a group of expatriates including doctors, clerics and academics, becoming the second country in the region to introduce a formal naturalisation programme for foreigners. Last February, the Kingdom unveiled plans to approve a set of new draft laws designed to enhance the efficiency and integrity of the country’s judicial system, a step that would eventually lead to an entirely codified law. The government also plans to cease doing business with companies and commercial institutions that base their Middle East headquarters in any other

GDP from 4.9% in its preliminary budget statement, is forecasting revenues of as much as $241 billion in 2022, a 4.5% increase compared to earlier projections. The Saudi government tapped international debt markets with a $5 billion dual-tranche dollar-denominated bond in January 2021, a $1.8 billion eurodenominated bond in February and raised $3.25 billion by issuing dual-tranche bonds as the economic recovery continues as the pandemic eases and oil prices soar. Moody’s upgraded Saudi Arabia’s outlook to stable from negative in November 2021, citing the country’s ability to reverse most of its 2020 debt increase while preserving fiscal buffers. The rating agency said that it “expected fiscal improvement over the next several years will be facilitated by higher oil prices, although the stable outlook also takes into account the expectation that oil prices will remain volatile.”

Crown Prince Mohammed unveiled a new strategy for the Gulf state’s National Development Fund last month that will see the country injecting more than $151.94 billion into the economy by 2030. Under the new strategy, the fund will also help Saudi Arabia triple non-oil GDP to $161.3 billion in the same period. The Saudi wealth fund, with around $580 billion AUM on behalf of the government, is financing several mega-projects that are currently under development in the kingdom including the $500 billion futuristic NEOM City, Qiddiya, and the Red Sea Development Company’s mega tourism project. Saudi Arabia transferred 4% of Aramco shares worth $80 billion to PIF to bolster the sovereign wealth fund’s strong financial position and high credit ratings in the medium term. The fund received the fifth-

Realizing Vision 2030 Saudi Arabia, the Arab world’s largest economy, is expected to witness sustainable growth on the back of the government’s continued efforts to increase spending efficiency and enhance public-private partnerships. “The ongoing implementation of Vision 2030 initiatives, mega projects and domestic spending by the Public Investment Fund will boost investment and combine with higher oil production to support a broad-based recovery in the domestic non-oil sector,” said KPMG. Saudi Arabia launched the “Shareek” program last March, a $1.3 trillion investment program that seeks to bolster the collaboration between the public and private sector while mobilising the Gulf state’s biggest listed firms such as Aramco, stc Group and SABIC to help wean the Kingdom from its dependence on oil revenues. The initiative is part of $3.2 trillion worth of investments planned by 2030 and includes $8 billion from PIF and $1.07 trillion under a new government investment strategy that is yet to be revealed.

SAUDI ARABIA’S TASI WAS UP FOR THE SIXTH CONSECUTIVE YEAR IN 2021 AND RECORDED THE SECOND BIGGEST RETURN IN THE GCC DURING THE YEAR THAT REACHED 29.8% – Kamco Invest

highest credit rating “A1” from Moody’s in February while Fitch assigned PIF its “A” credit rating ahead of its plans to tap the international bond market for the first time. The Gulf state’s investments through PIF include more than $1 billion investment in electric carmaker Lucid Group, a 3.75% stake in ride-hailing giant Uber Technologies and a host of local mega-projects such as the $500 billion futuristic NEOM City, Qiddiya and the Red Sea Development Company’s mega tourism project. Structural reforms Saudi Arabia is pushing through social and economic reforms as part of Crown Prince Mohammed’s broader strategy to modernise the country and attract

country in the region from 2024, signalling its desire to attract more investors. The move saw more than 40 multinational companies including Baker Hughes, KPMG and Schlumberger receiving licenses last October, part of the authorities’ ambitious goal to turn the world’s biggest oil exporter into an investment powerhouse and a global hub for business and talent. Saudi Arabia is introducing new incentives, revamping regulations and plans to create special economic zones to boost foreign investment and convince multinationals to relocate to Riyadh. The kingdom is also championing sustainability following the launch of the “Saudi Green Initiative” last year as the country aims to reach zero-net emissions by 2060. mea-finance.com

INSURANCE

Emerging Stronger While Pivoting To Thrive The biggest markets for insurance in the region are Saudi Arabia and The UAE, and while the sector remains resilient in the face of challenging times - with increasing M&A activity and good growth prospects for Takaful - it faces the need to speed up digitalisation

he insurance market in the Middle East region is proving to be remarkably resilient in the face of significantly reduced revenues due to the prolonged pandemic and the impact of business interruption disputes on insurers hit by the resulting class actions. Most insurers in the region seek to leverage the innovation that emerged following the outbreak of COVID-19 as

business activity in the region continues to pick up on the back of a rebound in oil prices and the lifting of pandemic-related restrictions. “While 2021 saw the pandemic continue to shape the economic and political landscape, rising prices across all product lines, even those perceived as difficult, generated healthy top line growth for many insurance businesses,” said Clyde & Co.

The region’s ongoing economic recovery on the back of higher oil prices, government spending and increasing activity in the non-oil sector is expected to boost insurers’ gross written premiums (GWP) growth and growth prospects throughout the year. However, the sanctions that the US and its allies imposed on Russian energy imports after the invasion of Ukraine are driving inflationary pressures and reinsurance carriers are starting to feel the pinch of soaring operations costs. The UAE and Saudi Arabia remain the two biggest insurance markets in the Middle East with health insurance businesses dominating in both countries. The health division has been the fastestgrowing insurance product in the region following the implementation of compulsory cover in the UAE and Saudi Arabia since 2005 and 2006 respectively. Following the business trends that

Banking and Finance news in the MEA market

Rajesh Sethi, Chief Executive Officer,

emerged following the outbreak of the coronavirus, insurance companies in the region are also digitalising their businesses as legacy insurers are starting to pay attention to new business models. Meanwhile, tech firms, that are capable of speeding up the process for customers buying insurance and making claims, are seen as having an edge over traditional insurers. PwC said that legacy insurers have become some of the largest funders of these insurtech startups as they recognise that joining forces with tech firms can be a game-changer. Insurtech is also on the radar of techsavvy governments in the Middle East as well as private equity and venture capital firms which is evident by soaring investments in insurance technology companies since 2018. Industry experts expect insurtech to bolster strength and resilience for insurance and reinsurance to thrive in the post-pandemic world. M&A activity Though there are new avenues to growth in the insurance sector in the Middle East, mergers and acquisitions (M&A) continue to provide attractive opportunities for regional insurers to grow their businesses, expand their footprint and acquire new customers. The challenging operating environment which was was exacerbated by an exodus of expatriates who mostly require health insurance, is putting more pressure on Middle East insurers’ GWP, which will likely fuel a surge in consolidations as companies seek to remain profitable and maintain a competitive edge. Kuwait’s Gulf Insurance Group (GIG) completed the acquisition of AXA Group’s operations in the GCC region last September for a total cash consideration of $474.8 million. The deal includes AXA’s shareholding in AXA Gulf, which entails operations in Bahrain, the UAE, Oman and Qatar as well as AXA Cooperative Insurance Company in Saudi Arabia. Dubai-based Oman Insurance acquired the UAE life insurance portfolio of Italian insurer Assicurazioni Generali for an

undisclosed sum in March 2022. ADQ, the youngest of Abu Dhabi’s three sovereign funds, also bolstered its healthcare and pharma portfolio with the acquisition of a 20% stake in Daman from reinsurance provider Munich Re in October 2021. ADQ already held 80% shareholding in Daman and the deal made the UAE insurer a wholly-owned subsidiary of the Abu Dhabi-based holding firm. S&P Global said that with GWP growth picking up again in the UAE’s insurance market thanks to higher economic activity, “we expect 2022 to exceed 2019 levels.” “We expect strong M&A activity to continue as we head into 2022, driven by divestitures of non-core businesses, continued competition for distribution targets, the hardening of specialty property and casualty insurance and significant levels of deployable capital,” said PwC. Saudi Arabia’s SABB Takaful signed a binding merger agreement with Walaa Cooperative Insurance in February 2022. Upon the completion of the deal, SABB Takaful’s assets, liabilities, and rights will be transferred to Walaa Insurance and the former will “cease to exist”. The potential tie-up between the Saudi insurers follows the consolidation of Walaa Cooperative Insurance and MetLife in March 2020. The Saudi insurance market maintained GWP growth of about 5% in 2021, according to S&P Global and the growth is expected to remain in the same range for 2022, driven by the Gulf state’s economic recovery and further supported by the Hajj and Umrah medical insurance program. “Pressure on solvency and certain regulatory incentives have led to a number of mergers in Saudi Arabia over the past year and we expect this trend to continue throughout 2022,” said S&P Global. Al Sagr Cooperative Insurance and Gulf Union Al Ahlia Cooperative Insurance, two Saudi insurers, also started preliminary talks to study the feasibility of a merger last December. However, the much-anticipated merger between Saudi Enaya Cooperative Insurance and Amana Cooperative Insurance was rejected

by the former’s shareholders earlier this year. Meanwhile, the overhaul of the Kuwait insurance regulatory regime in March 2022 could increase pressure on small and unprofitable Islamic insurers, forcing them to raise capital to meet the new requirements. Digitalisation The insurance operating models are on the verge of a fundamental change as the pandemic and its global impact on economic activities is increasingly driving a rapid shift in customer behavior and expectations amid competition and changing regulations. Though the insurance sector has lagged other financial service industries in digitalising its core business and embracing customer experience-led approaches, insurtech is expected to advance the development of the industry. “Core trends suggest the insurance industry is not immune to the tech-based disruptions facing other industries; customer demands are changing, traditional operating models are under pressure, and new players are emerging,” said McKinsey. The GCC is one of the world’s fastestgrowing insurance markets. However, growth has slowed in the last three years, ramping up the pressure on regional insurers to out-innovate the competition. As more insurers in the Middle East are increasingly focusing on adding new technology capabilities to their businesses, acquiring mature insurtech firms could be increasingly attractive for legacy insurance firms provided they can make a near-term impact on operations. Dubai’s I-Insured launched an artificial intelligence (AI)-based SafeDriver PayHow-You-Drive (PHYD) app that offers policyholders lower premiums and incentives based on their driving behavior. Addenda, a Dubai-based insurtech firm that uses distributed ledger technology to streamline processes between insurance companies is collaborating with more than five major regional insurers including mea-finance.com

INSURANCE

Aman Insurance, Al Wathba Insurance and National Takaful Company (Watania) as part of their digitalisation strategy. “As the insurance sector expands in the GCC, regional players now have the perfect opportunity to reap the rewards of being early movers in the global digital transformation story,” said Kearney. UAE’s Union Insurance Company also uses AI, which uses natural language processing to extract data from documents, to issue motor policies in less than one minute while Aqeed allows customers to compare and buy insurance policies from its platform. Through Aqeed’s dashboard, users can access documents and policies in force, contact insurers and compare prices among other services. Globally, automated digital platforms are being used by some insurers to file and record insurance claims, including Suncorp in Australia and Tata-AIG in India. Meanwhile, India’s ICICI Lombard uses an AI-based cashless claims settlement process that can be completed in just one minute. Insurers are leveraging their abundant data to find new areas of growth, with an industry-wide push to make use of technological innovations such as AI and machine learning (ML). The deployment of AI-powered platforms by insurance firms in the Middle East will enhance data capture and analysis, boost overall operational efficiency as well as enhance customers experience and reduce customer acquisition costs. Takaful The economic recovery across core Islamic markets in the Middle East, Africa and South Asia (MEASA) region and strong investor demand for Shari’ah-compliant insurance products will continue to support investment into the sector. “We expect takaful contributions (insurance premiums) to keep growing moderately over the next two to three years, helped by rising demand for medical insurance as more GCC, African and Southeast Asian countries introduce compulsory health cover,” said Moody’s.

Though Saudi Arabia, the biggest Islamic insurance (takaful) market in the Gulf region, registered a plunge in premium due to declining new car sales, S&P Global projected that GWP in the kingdom will grow by as much as 5% this year boosted by higher premium volumes for medical business through an extension of existing and new covers. The UAE, the second-biggest Arab economy, is experiencing a significant increase in consumer confidence and the government’s changes in visa requirements to attract more talent is

Outlook As economies in core Islamic markets in MEASA are emerging from the pandemic insurers must consider implementing a mix of offensive and defensive actions to accelerate sustainable recovery efforts and pivot to the thrive phase when growth is re-emphasised, despite the challenging operating conditions. Takaful operators’ capitalisation will likely remain strong throughout this year as more governments are introducing risk-based capital regulation. “Risk-based capital regimes encourage better risk

WHILE 2021 SAW THE PANDEMIC CONTINUE TO SHAPE THE ECONOMIC AND POLITICAL LANDSCAPE, RISING PRICES ACROSS ALL PRODUCT LINES, EVEN THOSE PERCEIVED AS DIFFICULT, GENERATED HEALTHY TOP LINE GROWTH FOR MANY INSURANCE BUSINESSES – Clyde & Co.

expected to boost premiums for smaller takaful players. Growth prospects for takaful remain buoyed by strong investor demand, digitalisation and improving regulations that makes it easier for Islamic insurance operators to obtain licenses. “The recent adoption of risk-based capital regulation in core takaful markets, and takaful insurers’ continued embrace of digitalisation are further positive factors,” Moody’s said. Takaful insurers mainly focus on retail lines of the business and players in Oman, Saudi Arabia and Kuwait are set to benefit from compulsory health insurance requirements as well as similar measures that are being implemented in Saudi Arabia’s motor insurance division. Mandatory medical cover is also driving growth in Southeast Asia and Africa.

Banking and Finance news in the MEA market

management, thereby improving insurers’ capital adequacy, underwriting, reserving and investments,” said Moody’s. Regulatory changes that are being introduced in nascent takaful markets such as a simpler licensing process for players are also creating a framework for increased growth and penetration of Islamic insurance in countries including Kenya, Egypt, Algeria and Morocco. The Islamic insurance sector stepped up its investment in digitalisation in response to the pandemic over the past two years amid changing customer demands and expectations, which is expected to enable small takaful players to reach more customers at a lower cost. The resumption of nonessential medical treatment pushed the volume of claims to more normal levels last year and the growth is expected to continue throughout 2022.

MEAFINANCE

Su mmi t & A w a r d s 2 02 2

19 MAY 2022

ARMANI HOTEL, BURJ KHALIFA DUBAI, UNITED ARAB EMIRATES

Continuing Innovation in Banking & Finance The exclusive annual forum connecting leading bankers and technology professionals to debate new developments in digitisation and identify emerging trends and opportunities in the regional financial markets.

KEYNOTE

SPEAKERS

Ahmed Mohamed Al Naqbi

Raja Al Mazrouei

Executive Vice President DIFC FinTech Hive

Ali Imran

Amit Malhotra

Ayesha Abbas

Devid Jegerson

Kazim Kirmani

Mirna Sleiman

Head of Transaction General Manager Chief Executive Officer Banking & Digital Services Personal Banking Group Commercial Bank of Commercial Bank of Emirates Dubai Dubai Development Bank

Arjun Vir Singh Head of Financial Services - MENA Arthur D. Little

George Hojeige

Chief Executive Officer Virtugroup

Managing Director - Head of Head of Customer Experience and Affluent, Priority & Premium Banking, and Branch Network Platform Development National Bank of Standard Chartered Bank Fujairah PJSC

Managing Director & Head of Products and Data Magnati

Founder & CEO Fintech Galaxy

Anirudha Panse

Anand Krishnan

Anthony Habis

Dinesh Sharma

Domenico Scaffidi

Daniel Robinson

Mohamed Abdel Razek Mohamed Roushdy

Mohammed Wassim Khayata

Director, Head of Managing Director, Head Technology of Middle East & Africa Emirates Investment Bank of New York Mellon Bank

Vice President, Global Managing Director & Industry & Regulatory CEO Consumer Bank – Affairs - Interim EU & Africa Middle East Head of Sales Citi Volante

Chief Tech & OPs Officer Africa, Middle East Standard Chartered Bank

Founder & CEO Fintech Bazaar

MD & Head of Trade Finance Product Innovation First Abu Dhabi Bank

Head of Wealth & Personal Banking (WPB) UAE HSBC

Founder & CEO Al Maryah Community Bank

Mohit Gupta

Director - Product Management Middle East & North Africa Mastercard

Saud Al Dhawyani Chief Technology Officer Emirates NBD

Dr. Nouran Youssef Senior Financial Sector Specialist Arab Monetary Fund

Saqib Khan

Regional Head, Middle East Backbase

Olivier Crespin

Co-Founder & CEO Zand

Shankar Garg

Region Head - Middle East and Africa Xebia

Viji Varghese

SVP, Head of Global Payments & Clearing Mashreq

Onur Ozan

Peter Smith

Head of Middle East, North Africa & Turkey SWIFT

Managing Director, Head of Strategy, Policy and Risk Dubai Financial Services Authority

Srinivasan Sampath

Sriranga Sampathkumar

Acting Group Chief Technology Officer First Abu Dhabi Bank

Vincent Kilkoyne EVP Product Management SmartStream Technologies

VP & General Manager – Middle East & Africa Infosys

Sanjay Malhotra

Chief Consumer Banking Officer Dubai Islamic Bank

Tarek Soubra

Chief Technology Officer Al Maryah Community Bank

Vivek Porwal

SVP, Consulting and Banking Practice Head QualityKiosk Technologies

MEA Finance Banking Technology Summit 2022 will gather regional leaders in banking and technology in a series of panel debates. The Summit discussions will cover the extent and magnitude of the banking challenges ahead needed to drive the shift toward establishing future-focused banks. Following on from the summit comes our annual Banking Technology Awards, recognising the commendable achievements of banks and technology businesses for their delivery of smarter banking solutions and for their ability to drive real growth in an increasingly competitive regional market. GOLD SPONSORS

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For inquiries, call +971 50 1005488 / +971 50 9313236 or email: info@mea-finance.com

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

The Expanding Payments Universe The last two years have undoubtedly seen an acceleration in a string of existing trends in both consumer and business behaviours while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards

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he payments space is changing faster than any other area of the financial services sector driven by advancements in financial technology and evolving customer expectations that have shattered the status quo and opened the window for new players that are challenging incumbent banks. Non-banking players including e-commerce firms, merchants and social media platforms now offer instant payment solutions, a trend that is disrupting and driving rapid changes in the sector. Characterised by tap, touch, speak, grab and go, digital payments have gained popularity over the past two years as cash usage ebbs.

appropriately align operations to achieve the required performance improvements. MEA Finance, in partnership with Volante Technologies, hosted an exclusive roundtable themed Modernization of the Payment Landscape in Dubai, where industry experts from the financial services sector shed some insight on how financial services providers can leverage the cloud, payment infrastructure, data and open banking to broaden their payments services. Volante, a US-based cloud payments and financial messaging solutions provider works with more than 100 banks, financial institutions, market infrastructures, clearinghouses and corporate treasuries to accelerate their

the customer’s checkout experience. The outbreak of the pandemic pushed more shoppers online and together with changing customer preferences, as well as demands among the young tech-savvy customer base, it is driving a surge in global payments volumes.

The outbreak of the pandemic saw the volume of digital payments soaring to record highs and generating as much as 10 years’ worth of growth in just 24 months. The payments industry remains among the best-performing financial services product segments but unfortunately for banks, this momentum is no longer extending to most of them, especially under the current operating conditions. For banks, the traditional main providers of payments services, to maintain a competitive edge in the payment ecosystem, industry experts say success will depend on how they assess capabilities, determine the role of the service in market strategies and

digital transformation. The company counts Citibank, Qatar Islamic Bank UK, BNY Mellon, Bank Leumi UK and FIMBank among its customers. Growth in the payments sector is receiving a boost from the ongoing shift towards subscription-based billing, a boon for the region’s payments-as-aservice (PaaS) and software-as-a-service solution (SaaS) providers. McKinsey said that open-source software, serverless architecture and SaaS have become must-haves for technology players and traditional financial institutions launching new fintech businesses. Meanwhile, the growth in e-commerce is also critical to the success of digital payments because it directly enhances

platforms such as Square and its peers are driving the biggest disruptions in the payments ecosystem. Domenico Scaffidi, Vice President of Global Industry & Regulatory Affairs at Volante in his opening remarks said that 80% of CEOs in the payments industry are really worried about the transformation currently underway in the market while citing PwC, one of their company’s advisors that are supporting it in understanding the changes in the financial services sector. Financial institutions for the past decade have undergone various efforts to modernise the payments sector, thanks to the technological innovations in the industry that are expected to continue

Payment’s modernisation The payments sector, just like any other branch of the financial services ecosystem, has surely seen more than its fair share of disruption in the last decade. The changing customer behaviours and reimagined customer experiences, intense regulatory environment as well as payments innovators who are backing open and standardised

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ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

fuelling disruptive business models in the payments space globally. The first phase of modernisation in the payments space saw financial institutions consolidating channel and payment client-facing applications and the next phase is currently underway in which institutions are aligning to various global standards including IS020022 and open banking. The leverage, the traction and the migration to ISO 20022, the new payments messaging choice for real-time systems, are evident in the payments industry but then, the reality is what a bank can build on top of that technology such as creating new value services, said Scaffidi. “We need the technology, but we need to understand how financial institutions, corporates, biller companies and all our clients from the financial services sector to switch banks, thanks to the future of open banking, and the capability for a corporates to change banks,” he said while highlighting that around 82% of all global financial institutions that work in partnership with Volante are worried of losing business to new entrants such as e-commerce firms, payments startups and fintechs that have all stormed the payments space. The last two years have undoubtedly seen an acceleration in a string of existing trends in both consumer and business behaviors while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards.

Scaffidi said that Volante’s strategy in a region such as the Middle East where there are several investment initiatives in the local payment ecosystem such as Buna, involves the creation of a foundation for partnerships with local players to build a strong and long-term relationship. Volante’s foundation is based on three important pillars, which include building partnerships with payments firms, mitigating risks and enhancing the ecosystem. Anand Sampath, Executive Director, Head - Global Payables & Receivables at First Abu Dhabi Bank (FAB) weighed in saying that up until now there are as many as 56 jurisdictions that offer instant payments, but with the outbreak

THE FUTURE IS GOING TO BE LED BY WHAT THE MARKETS AND THE BEHAVIOUR OF THE CONSUMERS ARE DEMANDING FROM YOU. WHETHER YOU’RE A BANK, A TECHNOLOGY COMPANY, OR A SUPERMARKET… IT’S ALL ABOUT WHAT THE CONSUMER WANTS – Ahmed Hamam

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of COVID the expectations of corporates and retail customers have changed significantly. “Banks need to get up to this, to make sure that we ride the wave, from the perspective of making sure that we work with this modernization of payments internally also, from the bank’s perspective,” Sampath added. Volante said that through partnerships it seeks to understand a client’s new business model, how to get fresh revenue as well as formulate new strategy and new added-value services built on the technology that it offers. The partnerships that the company creates with local payment companies allow them to introduce new products and services into the market swiftly as the industry is changing rapidly. “So, time to market means that when a payments firm knocks on the door of a solution provider asking for new addedvalue services, competitive end-to-end production or cheaper production, we need to be ready,” said Scaffidi. The payments industr y was alive with activity last year and 2022 is promising to be another busy year w i t h c o n t i n u i n g t ra n sfo r m a t i o n underway in the payments market and an array of strategic opportunities coming into focus.

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

Max Di Gregorio, Managing Director of Financial Services at Accenture, said that the UAE central bank launched the Gulf state’s National Payment Systems Strategy (NPSS) in March 2022 and the move is a significant step towards the modernization of the payment infrastructure in the country. Indeed, S&P Global said, “We expect key lessons from the pandemic to spark an enhanced focus on payments infrastructure modernisation in 2022 as merchants look to accommodate operational shifts (e.g., accelerated e-commerce growth, expedited fulfilment) and new customer demands (e.g., contactless payments, curb side pickup) that have continued to accelerate over the past 18 months.”

Di Gregorio concurred with Scaffidi saying that the payment industry is undergoing unprecedented changes. “A significant number of trends are impacting the business from a regulatory perspective, and we see a very dynamic environment, open banking, open data and open finance,” Di Gregorio added. He hailed countries such as the UK, which launched its national payments framework many years ago including the US and the rest of the European zone. Meanwhile, in the Middle East, the Saudi Central Bank (SAMA) launched the kingdom’s Instant Payment System (IPS) Sarie in February 2021, Egypt unveiled its national system for instant payments network in March, as the UAE expects its NPSS to be widely in service by end of the year or the beginning of 2023.

and international standards including ISO20022. The launch of an NPSS in the UAE will facilitate the migration to ISO20022 for SWIFT and on top of the clearing and settlement, the platform will also provide new value-added services that will be enabled through multiple releases in the coming two years. The new platform will transform the UAE’s financial services ecosystem and marks the beginning of the next generation of payment services in the region that seeks to provide safe, innovative and convenient electronic payments in the Middle East. An Accenture-led consortium that includes Abu Dhabi-based artificial intelligence (AI) and cloud computing firm G42 and SIA, now part of Nexi Group, was

On mitigating risks, Scaffidi said that when corporates think of data privacy concerns, some of the questions that are being asked include whether companies are compliant with the new regulation. This calls for the creation of a safe environment for players in the payments market while increasing resiliency and adding Service Level Agreements (SLA). “Our SLA is very close to the regulator, it’s very close to the service provider. We offer the last mile connectivity in SWIFT. And all that is to reduce the risk of outages and of failing when offering a service to clients,” Scaffidi added.

Taking a leaf out of Bahrain’s book, Sameer Nemazie, Director, Transaction Banking MENA at Standard Chartered Bank said that the Gulf state has had a lot of success with its instant payment infrastructure, and “we see a lot of volume coming through it, I think one of the successes that they’ve had is because the provider that’s doing these payments, the entire infrastructure is the central bank itself.” The million-dollar question is what is NPSS and why is it so important? Di Gregorio said that it is an instant clearing and settlement platform that is available 24/7 and is compliant with best practices

tasked with the building and operating the UAE’s instant payment platform over the next five years. The consortium will also overhaul the country’s current payment systems, operate the target financial market infrastructure and provide the data centre infrastructure to deliver new capabilities such as e-checks to digitalize check-based payments and a payments application to accelerate adoption. C-level executives in the Middle East region’s financial services industry are up against mounting pressures to drive topof-funnel growth and increase customer lifetime value and the modernisation of payments infrastructure is expected to

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WHEN WE SAY CLOUD-READINESS, ONE OF THE THINGS THAT NEED TO BE CONSIDERED IS THE CLOUD ECONOMICS. A BANK CANNOT HAVE A CLOUD INFRASTRUCTURE FOR PAYMENTS AND ANOTHER FOR OTHER SERVICES IT OFFERS. BANKS HAVE TO LOOK INTO THE OVERALL CLOUD ECONOMICS SO THAT ALL SYSTEMS CAN CO-EXIST – Sashi Mundhra

have a significant transformative impact on business over the next three years. Vibhor Mundhada, CEO of NeoPay said that debit and credit cards will continue to be the preferred choice of payments as business models will continue to change where new age rates could still drive credit at the point of sale or checkout. “Companies who have been doing traditional rails of payments such as Block, formerly Square, have launched their app, a lot of that credit sits outside the traditional MasterCard or Visa space,” Mundhada said while adding that the ability to do value-added services with the data that companies generate from

payments is happening at the moment of proof. Mundhada heads NeoPay, the payments unit of Dubai’s Mashreq Bank, which was carved out into a new standalone business in March 2022 and seeks to help businesses handle credit and debit card payments amid a pandemic-fuelled e-commerce boom. Sanjay Rakesh, Head of Corporate Banking Operations at Zand weighed in saying that MasterCard and Visa have around 15-20% market share in the Middle East region but there are a lot more untapped markets “depending on how you slice and dice the regional market.”

Rakesh said the non-card market is the one being targeted by digital payments firms such as Block while drawing on how MasterCard acquired a controlling stake in UK payments processing company VocaLink Holdings for $913 million (GBP 700 million).

Monetizing payments SaaS-based platforms such as UAEbased InstaShop and Careem leverage data to solve customer pain points like offering e-commerce services, managing finances, or scheduling home services and charge a monthly fee to access that service. Banks can monetize payments by charging customers for payments and payment-related features or enter

revenue-sharing agreements with service providers. Stripe identified five primary ways to monetize payments and payment-related features including charging customers a fee to access payments, marking up each transaction, introducing fees for advanced payment features as well as adding a fee in cases where customers use other payment gateways and charging for advanced, customized reporting. Salim Awan, Managing Director, Institutional Payments Solutions at Magnati said his company is leveraging data from payments to create a platform in partnership with fintechs mea-finance.com

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

and companies from different sectors that can help deliver value to the market. The payments firm recently launched a service that enables it to study payments users (consumer end) to figure out spending habits, an initiative that can turn data into extra revenue by identifying likely customers for retailers. “The customer data and actionable insights can help merchants, or businesses, or the government, to offer the customer the right type of services which that consumer wants,” said Awan. Sashi Mundhra, Director of Presales MENA at Volante Technologies said that payments have always been considered a service that is provided as part of a

product, but banks can also study “how this product can add to the top line, how it can help save the bottom line, as well as how the data models can be extended to be a value proposition to other products.” Customer data is key to financial institutions, and it is the manual that helps them meet customers’ preferences and expectations as well as explore new avenues of growth or new business models. Jagadeshwaran K Managing Director Treasury & Trade Solutions, Citi said that given that Citibank is globally present, “we are already participating in instant payments worldwide and it all starts with the customer.” He said that there are two

THE RETAIL BANKING PAYMENTS MARKET IS GREAT, BUT WHERE FINANCIAL INSTITUTIONS ARE MAKING MONEY WHEN IT COMES TO PAYMENT IS USUALLY ON THE CORPORATE SIDE – Houssam Chaker

sets of customers—the digital natives who want 24/7/365 instant and real-time payments and the traditional corporate clients who are still transforming to the digital native phase.

language as the treasury or finance professionals care about business more than the method of payment. Adding to the corporate use case perspective, Tariq Hoodbhoy, Managing

For, Houssam Chaker, Regional Head of the Middle East at Volante Technologies, “the retail banking payments market is great, but where financial institutions are making money when it comes to payment is usually on the corporate side.” Chaker said it is important for banks to know how to onboard corporate clients given that corporate onboarding is a huge subject, especially in the Middle East region where financial institutions are facing difficulties because of infrastructure challenges between corporate customers’ Account Reconciliation Package (ARP) and the banks. Corporate onboarding challenges usually originate from being unable to understand the customer

Director-Head of Treasury Advisory at First Abu Dhabi Bank, said that every banking service, or product is being commoditized and “at the end of the day, for any banking service, there are all these new instructions coming in, it’s a commodity now.” Meanwhile, Ahmed Hamam, the Head of Product Development & Channel Implementation, Abu Dhabi Commercial Bank (ADCB) said that the problem with financial institutions is that they are stuck on whether they’re going to make more money from payments. “The future is going to be led by what the markets and the behavior of the consumer are demanding from you. Whether you’re

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a bank, a technology company or a supermarket… it’s all about what the consumer wants,” said Hamam. Navneet Dave, Regional Managing Director, Group Processing at Network International also weighed in saying as a payment processor, Network provides services to banks, fintechs and clients from industries operating in between 40-50 geographies. For Dave, the appetite for value-added services in the market is huge and clients are always asking for a more agile payment ecosystem. Shajeeb Hamza, Senior Digital Transformation Officer at Abu Dhabi Islamic Bank (ADIB) said that though banks—legacy payment players—have

to satisfy in general the compliance and the regulatory bodies, they have to meet the demands and requirements of many of the stakeholders and parties they serve. It is in that phase that most financial institutions are a little bit slow in delivering new value-added services, he added.

The future of payments is cloud The rapid growth of cloud-based financial services is offering banks a window to be more innovative and efficient in-service delivery, but it is also opening up the industry to new entrants such as fintechs, global retail giants as well as card networks and neobanks.

“The solution is in the cloud. It could be a private cloud, public cloud, or hybrid cloud models,” said Scaffidi. McKinsey said that the public cloud means that the infrastructure is owned by cloud computing service providers, hybrid cloud infrastructure is composed of two or more types of cloud (private, public) that are maintained independently while private cloud means that the infrastructure is built for an individual customer’s exclusive use. S c a f f i d i s a i d t h a t b a n ks a re investing millions of dollars in emerging technologies as part of their broader business strategy but to generate genuine business value from this type of digital transformation financial institutions

THE CUSTOMER DATA AND ACTIONABLE INSIGHTS CAN HELP MERCHANTS, OR BUSINESSES, OR THE GOVERNMENT TO OFFER THE CUSTOMER THE RIGHT TYPE OF SERVICES WHICH THAT CONSUMER WANTS – Salim Awan

should choose cloud infrastructure that meets desired level of trade-offs between factors such as scalability and data security. Cloud computing offers a dynamic platform to develop, trial and offer innovative services in the financial service industry, payments included, while driving operating and business model transformation. The cloud is enhancing innovation across the payment services sector enabling high data security and cost-effectiveness on the part of banks, and it also drives innovation as financial institutions keep on introducing new services and products to maintain their market

position and meet customers’ evolving demands and expectations. The cloudification of the payments space is being powered by financial institutions’ need for resilience and scalability, payments infrastructure upgrades and the cloud’s ability to respond in agile ways to market disruptions and drive continuous improvement. “When we say cloud-readiness, one of the things that need to be considered is the cloud economics. A bank cannot have a cloud infrastructure for payments and another for other services it offers. Banks must consider the overall cloud economics so that all systems can co-exist,” added Mundhra. mea-finance.com

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

There are around six cloud delivery models including Infrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS) as well as Managed Services (MS), Business Process as a Service (BPaaS) and Cloud Stack. Zand’s Rakesh said that it’s a necessity that financial institutions should be cloudready especially when the technology solutions that they are going to implement are not in-house. SaaS allows banks to use the software as needed without having to own or maintain it themselves, while serverless architecture removes the need for financial institutions to run their own servers, freeing up time and resources for customers and operations. However, drawing on the success of M-Pesa in Kenya, Alipay and WeChat in China and Unified Payments Interface (UPI) in India, Victor Penna, Executive Vice President, GTB Co-head Mashreq, argued that the infrastructure does not count for a payment system to be a success. The above payments systems were backed with demonetization, low-cost providers coming to the market, and they backed it up with debit cards, which are all aimed at fostering financial inclusion. Penna said the biggest issue in the Middle East market is the lack of financial inclusion while highlighting that instant payment services take cash out of the economy and replace transactions with card-based transactions, QRs codes in Asia and SEPA Instant in the Eurozone. Devid Jegerson, Head of Customer Experience and Platform Development at the National Bank of Fujairah (NBF) said that the infrastructure is part of the problem. “The point is that infrastructure is very complicated, it’s very complex, and it’s dragging us into the discussion around regulation, the company infrastructure, project management when the consumer just wants efficient service.” Olivier Crespin, Co-Founder & CEO of Zand also echoed the same sentiments saying that infrastructure is key. Crespin said banks need a kind of regulatory push

from the government. “When the Indian government introduced UPI in 2016, we didn’t have a choice, the bank had to implement it in six months,” he said. Cloud computing liberates financial companies from non-core businesses such as information technology infrastructure and data centres while enabling access to flexible storage and computing services at a lower cost.

Standardising messaging The adoption of ISO 20022, a globally developed methodology for transmitting data that provides a consistent messaging standard for payments, by financial institutions is expected to bolster the acceleration of cross-border,

cross-currency instant and business-tobusiness payments in the next five years. ISO 20022 is emerging as a common language and model for financial messages across the world. SWIFT projected that 80% of global, high-value payments by volume will be processed through this standardised messaging system as major currencies are adopting it. Onur Ozan, Regional Head - Middle East, North Africa and Turkey at SWIFT said that payment modernization is also taking place on the traditional systems such as Real-Time Gross Settlement (RTGS) and Automated Clearing House (ACH) and “one thing that is common that we observed is that most of these

A SIGNIFICANT NUMBER OF TRENDS ARE IMPACTING THE BUSINESS FROM A REGULATORY PERSPECTIVE, AND WE SEE A VERY DYNAMIC ENVIRONMENT, OPEN BANKING, OPEN DATA, OPEN FINANCE – Max Di Gregorio

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new systems being introduced or being modernized are on ISO 20022.” ISO 20022 offers universal payments messaging language rather than managing multiple market systems that speak different languages. The formatting standard’s structure and dedicated fields for payment details create communication efficiency. Magnati’s Awan called for an inclusive ecosystem saying that the time has come for the creation of comprehensive partnerships because fintechs, banks, regulators and other financial institutions have to “work together to a point where you can probably be able to keep pace with the changes which are taking place in the industry.”

SWIFT said that from November 2022, it expects ISO 20022 to revolutionaries the way its community exchanges payments messages; a move that is set to unlock numerous opportunities for financial institutions including boosting operational efficiency, enhancing customer experience and enabling innovative new value-added services. “And a lot of this is valid for the crossborder payments, and this is what payment is about, and ISO 20022 is making a lot of data available to make this corporate onboarding easier,” said Chaker. “We have the infrastructure, we have this new, rich messaging format, but we’ll see which players will take advantage of that,” said Hanni El-Sayed, Director,

WE EXPECT KEY LESSONS FROM THE PANDEMIC TO SPARK AN ENHANCED FOCUS ON PAYMENTS INFRASTRUCTURE MODERNISATION IN 2022 AS MERCHANTS LOOK TO ACCOMMODATE OPERATIONAL SHIFTS AND NEW CUSTOMER DEMANDS THAT HAVE CONTINUED TO ACCELERATE OVER THE PAST 18 MONTHS – S&P Global

Accenture Strategy - Financial Services. El-Sayed said that when PSD2 was introduced in Europe it was more about compliance getting the bare minimum done to satisfy the regulator and move on with my other priorities but whoever is going to fully capitalize ISO 20022 and bring new products to market is going to maintain a competitive edge in the market.

Open banking With the adoption of open banking across the Middle East, legacy banks are slowly losing their tight control of customer data and total dominancy in the payment service sector, which is forcing several regional lenders to carve out their payments portfolios to allow a more flexible approach to growth.

Open banking is playing a significant role in the rise of the open data economy as it makes payments easier and more transparent while loosening incumbent banks’ tight control of customer data and their near monopoly over payment services. The European Union’s revised Payment Services Directive (PSD2) and open banking make it much easier for new entrants to launch new products and services while transforming the ways certain banking propositions work, according to global management consulting firm Kearney. The GCC region is one example of an emerging global open-banking microcosm. Bahrain is implementing a European-style regulation-driven approach and the UAE has adopted an mea-finance.com

ROUNDTABLE: MODERNISATION OF PAYMENT LANDSCAPE

American-style market-driven approach under the guidance of the Abu Dhabi Global Market and Dubai International Finance Centre. Saudi Arabia is also implementing a market-driven strategy, but the kingdom’s approach is inclined towards a more formal regulatory framework though its regulations don’t follow Bahrain in requiring the opening up of APIs, which facilitate data sharing, or in mandating security standards. Outside the GCC region, several countries including India, Japan, Singapore, and South Korea are implementing a marketdriven approach. These countries do not currently have formal or compulsory open banking regimes, but their policymakers are introducing wide-ranging measures to promote and accelerate data-sharing frameworks in the financial service. The emergence of new technologies and the evolving customer requirements have driven major innovations in the

payments industry. As the process of re-examining long-standing payments value propositions is already underway, Volante’s Scaffidi called on banks in the Middle East region to stop investing in black boxes that make the banks compliant with the requirements of the current operating environment, at the tactical level, “but rather what is happening in the long-term strategies, knowing that the payment ecosystem is changing every day.” Participants included Ahmed Hamam, Head – Product & Channel Implementation, ADCB, Anand Sampath, Executive Director, Cash Product Management Global Transaction Banking and Tariq Hoodbhoy, Managing Director & Head of Treasury Advisory Global Transaction Banking from FAB, Devid Jegerson, Head of Customer Experience & Platform Development, National Bank of Fujairah, Shajeeb Hamza, Senior Digital Transformation Officer from ADIB, Max Di Gregorio, Managing

Banking and Finance news in the MEA market

Director Financial Services, Hanni El-Sayed, Director, Accenture Strategy Financial Services, Haysam Abouzeid, Technology Consultant from Accenture, Jagadeshwaran K, Managing Director – Treasury and Trade Solutions MENAPT, Citi, Navneet Dave, Regional Managing Director – Processing – GCC, Network International, Olivier Crespin, CEO, Zand, Onur Ozan, Managing Director/ Regional Head Middle East, North Africa & Turkey, SWIFT, Salim Awan, Managing Director, Magnati, Sameer Nemazie, Director, Cash Products MENA, Standard Chartered Bank, Sanjay Rakesh, Head – Corporate Banking, Zand, Victor Penna, Executive Vice President, GTB Co-head and Vibhor Mundhaba, CEO, NeoPay of Mashreq and also attending the event were Mohamed Al Ali, Managing Director & Head of Cash Management and Yasmin Imam, Executive Director from FAB. Moderated by Andrew Cover, Director, MEA Finance Magazine

COVER INTERVIEW

The Right Combination A working blend of heritage and dynamism describes both the region and the bank we talk with in our cover story this issue. Anthony Habis Managing Director, Head of Middle East & Africa, highlights the transformations and unique qualities marking the region as of real potential, and why BNY Mellon is well suited to it

NY Mellon has been operating in the Middle East for decades. What aspects of this region’s market underpins and maintains your commitment to being here?

BNY Mellon enjoys a long history of operating in the Middle East. It is a dynamic region, and we are most excited to be a part of the tremendous growth and transformation that is currently inflight. In particular, the developments in core market infrastructure as an enabler for diversification and catalyst for FDI, which strongly aligns to our core strengths and capabilities as we build for future-proofed leading-edge financial markets infrastructure and provider for platform solutions.

Anthony Habis, Managing Director, Head of Middle East & Africa, BNY Mellon

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The Middle East and Africa is a high growth region for BNY Mellon. We are extremely committed to the region, where we serve a wide range of clients, including sovereign wealth funds, regional central banks and government entities, financial institutions, offering asset servicing and ancillary services, corporate trust and treasury services. BNY Mellon has been in Abu Dhabi since 1998 and we opened our first regional representative office in Lebanon in 1963. There is a deep and fast-growing wealth management sector in the region, particularly across the Middle East, as governments are diversifying their economies from dependence on hydrocarbon revenues and accelerating non-oil growth. With the financial industry opening up and foreign direct investment shifting to regional markets as well as continued fiscal and economic reforms, the region has some of the bestperforming bourses in the world, which has created a number of increasing opportunities for banks such as BNY Mellon. The region is also home to seven of the largest fifteen sovereign wealth funds with $3.5 trillion in assets under management. There are a number of increasing opportunities for banks such as BNY Mellon as global custody banks are seeking to gain access to a significant asset owner base. For example, the Kingdom of Saudi Arabia has seen a hotbed of activity in recent months; we are also deeply aligned with Saudi Arabia’s Vision 2030 and delighted to collaborate on shared objectives to drive the country’s economic transformation recently exemplified by our partnership with SNB Capital, a unit of Saudi National Bank, the biggest lender in the Kingdom, to provide global securities services to institutional and large asset owners in Saudi Arabia. As a platform provider in both B2B and B2C including trade finance, payment flows, custody operations, investment, and asset management services, coupled with our open architecture

delivery ecosystem and an innovative approach towards partnerships, as well as helping regional issuers of debt and equity access global markets there is a natural alignment between BNY Mellon’s strategic outlook, and the region’s aspiration for transformation.

Which sectors of the regional banking and financial markets are the most interesting to BNY Mellon at this time? Our goal is to orchestrate opportunity for the region through our leading-edge digital and data capabilities. We believe data has emerged as its own asset class and view data management as a core capability as capital markets evolve, driven by a demand for more and more transparency. With our extensive history

and a host of new and existing talent, technology, and data assets. In addition to our focus on building digital infrastructure, both asset management and wealth management are priority segments for us. As the Gulf’s sovereign wealth funds embark on a diversification agenda as well as privatizing certain state-owned assets, the medium to long term growth for the asset management industry is inevitable. In terms of our wealth management business, we view the Middle East as a key market for our Global Family Office business. As more families create formal family office structures, we are experiencing increasing demand for our services. We are often asked to assist families as they explore the advantages of creating a formal family office entity.

WE BELIEVE DATA HAS EMERGED AS ITS OWN ASSET CLASS AND VIEW DATA MANAGEMENT AS A CORE CAPABILITY AS CAPITAL MARKETS EVOLVE of providing world-class data solutions to some of the most significant players in the market, aggressive investment in data management, and persistent focus on innovation, BNY Mellon is uniquely positioned to be a strategic ally for clients in the GCC at this market inflection point. We launched a groundbreaking data collaboration with Saudi Arabia’s SNB Capital in December 2021, which helps unite SNB Capital’s extensive local knowledge and infrastructure with BNY Mellon’s world-class solutions in data management and securities servicing to power innovative solutions. Our Data and Analytics Solutions combines the capabilities and resources of our market-leading Eagle product suite, our Intermediary Analytics business,

The service array we provide helps our clients improve efficiency and goal-driven investment performance for the families’ wealth. We are seeing demand for master custody services increase significantly, as more families move to a master custodian relationship for safety and efficiency. As an investment manager, we are definitely not product focused, but instead we tailor investments to meet the unique needs, goals and objectives of each client. Our investment management model brings to clients the best of both worlds: specialist expertise from eight world-class investment firms offering solutions across major asset classes, backed by the strength, scale and proven stewardship of BNY Mellon. We develop an investment policy statement (IPS), mea-finance.com

COVER INTERVIEW

which defines what the client is seeking to achieve and how we are going to implement and manage the investments to achieve those goals. The IPS defines the investment guidelines. We develop an asset allocation to guide the investments and then actively manage that allocation based on our view of global markets. Our security selection is the final step of the investment process and aligns with the asset allocation and goals stated in the IPS for risk, return, liquidity and income. In general, our clients are broadly diversified across asset classes and their portfolio includes alternative investments to provide additional diversification in non-correlated assets.

What are your thoughts about the medium-term economic future for the Middle East & Africa? While 2021 was a year of recovery for the region, this year is shaping up to be a year of growth despite uncertainties. The Middle East and North Africa economies are expected to grow 5.2 percent in 2022, the fastest rate since 2016, on the back of higher oil prices, but the Ukraine crisis and threat of emergent COVID-19 variants add uncertainty to the outlook. It is still premature to determine the extent of the consequences of the Russian-Ukraine conflict, but we can already point to signs of difficulties affecting oil importing middle income countries. For GCC economies, the World Bank estimates that GDP growth is expected at 4.5 per cent this year – buoyed by the increase in oil prices – but will not recover to pre-pandemic levels until 2023. Overall, we believe the region can weather this storm with the hope that recovery will take place this year. We are also optimistic about the transformation we see ongoing in Saudi Arabia as part of Saudi Vision 2030. As the Kingdom’s market continues to evolve and diversify in line with the National Investment Strategy, Saudi continues to attract global investors, whilst developing first-class infrastructure, cybersecurity and data resiliency solutions.

BNY Mellon is well known as the world’s largest custodian bank. What role does custodian banking have in your regional business? In recent years, the Middle East and Africa region, particularly the GCC, has become a key component to BNY Mellon’s overall growth strategy. As official institutions in the GCC continue to diversify their reliance on hydrocarbons, the opening of the financial sector and attracting foreign direct investment are key to the region’s economic overhaul agendas. We have seen both the United Arab Emirates and Saudi Arabia introducing laws to broaden their appeal to foreign investors. For example, the Saudi financial regulator, the Capital Market Authority, in January 2018 halved the minimum capital requirement

week to Monday to Friday to align with other major economies. Against this backdrop, we expect to see further growth in the custodial services and asset management. Naturally, given the region is home to some of the world’s largest SWF’s, central banks and pension funds, custodial services and safe keeping is at the core of our business strategy. We see our purpose in the region is to power individuals and institutions to succeed across the financial world. To achieve that purpose, we leverage our unique and differentiated model to serve as a central orchestrator in functioning of global capital markets. We operate through a set of interconnected businesses, across three segments: a. security services, b. wealth and market infrastructure and c. investment and wealth management. All

WE SEE OUR PURPOSE IN THE REGION IS TO POWER INDIVIDUALS AND INSTITUTIONS TO SUCCEED ACROSS THE FINANCIAL WORLD

for foreign investors to $500 million from $1bn. FDI inflow to Saudi Arabia rose sharply in the first half of the year, climbing to $20bn. The UAE on the other hand, which is the Arab world’s second biggest economy, has embarked on several economic, legal, and social structural reforms in recent years that are aimed at strengthening the business landscape and attracting FDI. Some of these reforms also include the expansion of longer-term residency visas to broader categories of residents, wide-ranging changes to personal and labor laws, allowing 100 per cent foreign ownership of onshore companies and the recent decision to change the working

Banking and Finance news in the MEA market

of which play a systemic role in supporting our clients in imagining and developing their optimal operating model. We have a unique and differentiated model that distinguishes BNY Mellon. We have the scale and a global footprint of a global leader. We have one of the industry’s best client rosters – with connectivity and trust-based relationships to the most important institutions in the world. We run platform-like businesses that create scale and network effects, and we combine the strength, stability, and discipline of a 230+ year old bank with the business model, agility and growth mindset of an innovative fintech. Our early investments in data management,

were virtually the only ones in the market pursuing this. Following the successes, we now see a sharp uptick, with more companies embracing the approach globally. We certainly expect the trend of collaborations and open architecture to continue. In fact, we ourselves are actively pursuing it in the region and collaborating with regional fintech organizations. We are proud to be helping deliver a future-ready market infrastructure in the GCC based upon a common data management platform that connects market participants. Currently, one of the technologies we are developing involves prescriptive analytics. The difference between descriptive and prescriptive analytics can range from a sunk cost, with negative value, to a billion-dollar insight that drives a business. We contemplate which factors will most contribute to long-term client success through this lens. Using the power of data and analytics, we believe that by helping our clients succeed, we can create a world-class solution.

including our mature, award-winning Data & Analytics Solutions franchise. These global capabilities, supported by a global perspective given our standing as the world’s largest custodian, and complemented by our local Alliances with National champions, uniquely position us to bring to clients leading capabilities, with deep and entrenched local market knowledge and coverage.

How does BNY Mellon stay at the forefront of innovation? The pandemic highlighted the key roles that technologies such as AI, blockchain and robotics will play in the GCC’s future. It bolstered the need for Industry 4.0 (advanced, connected manufacturing), enhanced the positions of the world’s major tech players in the GCC, and accelerated the impact of technology on how citizens live, work, and consume. Given the region’s vibrant fintech and innovation community, at BNY Mellon we are invested in innovation and consistently tap into new solutions a n d te c h n o l o g i e s t h a t o pt i m i ze client offerings. Whilst very solution focused, our approach is very much centred on and around the regional transformation and aligning our interest and incentives with our partners. We recognise the core objective of our clients which often aligns with government policies on driving innovations. Our solutions are based on a growing well of data and expansive relationships, the extent of which are available to only the very largest global institutions. We couple these capabilities with the agility and innovation of a fintech, one with industry-leading technology already at its disposal. More importantly, we utilise our client-centric solutions to provide value to clients while collaborating with leading technology providers to support the vast needs of investment managers and bring the data to where people are making decisions. For example, when we first went live with BNY Mellon OMNISM, our Open Architecture platform three years ago, we

What do you find most satisfying and rewarding about heading a bank in this region?

OUR SOLUTIONS ARE BASED ON A GROWING WELL OF DATA AND EXPANSIVE RELATIONSHIPS, THE EXTENT OF WHICH ARE AVAILABLE TO ONLY THE VERY LARGEST GLOBAL INSTITUTIONS

I have had the pleasure of being in the region for well over a decade, and I continue to be impressed by regional government’s commitment to setting new benchmarks and driving innovation. The region has always aimed to meet global best practice standards, however, in the last couple years, we are witnessing a very different and unique trend emerging in the region, particularly the core constituents within the GCC. The Gulf countries are no longer looking to meet world standards, but instead setting their own benchmarks. The region’s diversification plans from fossil fuels and the pace of sweeping reforms that have been taking place are phenomenal and we expect see a higher growth and market activity. I am certain in the next 15 to 20 years it will be exciting to watch what the region accomplishes. mea-finance.com

ISLAMIC FINANCE

The Broadening Appeal of Islamic Finance The standardisation and integration of the Islamic finance sector, which includes aspects of Shariah interpretation and legal documentation, is expected to lead to greater market confidence and broaden its appeal to global investors

he Islamic banking and finance sector continues to demonstrate considerable growth globally, driven by continued standardisation and integration of the industry, the robust global appetite for Shariah-compliant products and funding diversification goals. S&P Global projected that the global Islamic finance industry will grow by 10% to 12% in 2021/22 after slowing to 10.6% in 2020. The economic recovery in the Middle East, Africa and South Asia (MEASA) region on the back of higher oil prices and strong response to COVID-19 will boost credit growth and demand for Shariahcompliant products. The improving operating environment and high funding needs will also enhance the growth of Islamic banks’ asset and liquidity position in core Islamic finance markets as

the lenders are expected to continue outperforming their conventional peers. On the sustainability front, the prolonged health crisis has thrust the Islamic finance industry back on environmental, social and governance (ESG) investors’ radar while encouraging the streamlining of the sector to boost its attractiveness. Digitalisation in the Islamic finance sector is also creating a nimbler finance industry. Moody’s said that the issuance of green Sukuk will accelerate in the coming years, particularly in Southeast Asia and the Gulf region, as regional governments seek to attract private capital to low-carbon and climate-resilient infrastructure projects. Though analysts projected that issuance would decline further this year following several years of high growth, improving market conditions will remain

Banking and Finance news in the MEA market

supportive for Islamic bond issuance. Sukuk issuance edged down by 12% in 2021 to $181 billion due to lower sovereign funding needs in the GCC and Indonesia thanks to the rally in oil prices and a rebound in the economy. “We expect issuance activity to further decline in 2022, to between $160 billion and $170 billion, as high oil prices continue to support GCC countries’ fiscal positions,” said Moody’s. Meanwhile, the standardisation of the global Islamic finance legal and regulatory framework represents a huge opportunity for the industry to streamline as well as strengthen processes and practices to broaden the appeal of Shariah-compliant financial products.

Standardising Islamic finance Islamic finance, which bans interest p a y m e n t s a n d p u re m o n e t a r y speculation, has been on the rise for many years across key Islamic markets in the MEASA region but the industry has remained largely fragmented with the uneven implementation of its rules. The overall volume of Sukuk issuance in 2020 plunged to $139.8 billion from $167.3 billion in 2019 despite the plunge in the oil price and the significant increase in financing needs in core Islamic finance markets. This was because more issuers

tapped the conventional markets, where it is easier and quicker to get the funds. The challenge that several issuers are facing is the implementation of the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards without changing the credit characteristics of the transaction. Sukuk instruments remain more complex and time-consuming for issuers than conventional bonds. With the adoption of Shariah Standard Number 59 by AAOIFI, the traditional Murabaha structure is no longer held to be Shariah-compliant by the Bahrainbased organisation and compliance became an obligation throughout the lifetime of the transaction. However, S&P Global noted that the adoption of AAOIFI standards by some jurisdictions already created challenges some issuers last year, particularly those with hybrid structures that combine a commodity Murabaha with tangible assets. T h e refo re, sta n d a rd i s a t i o n i s expected to make Islamic bond issuance comparable with conventional instruments from a cost and effort perspective, in that it will gain prominence among both issuers and investors. “Over the next 12 months, we could see progress on a unified global legal and regulatory framework for Islamic finance that Dubai and its partners are developing,” said S&P Global. AAOIFI and Malaysia’s Islamic Financial Service Board (IFSB), two institutions that have traditionally worked independently on their respective mandates in the past, signed an MoU in 2018 to create a level playing field and foster harmonisation and standardisation of regulations. The UAE took the first step towards the standardisation of Islamic finance in May 2020 by launching the Higher Shariah Authority. Overseen by the central bank, the Higher Shariah Authority is a national regulator entrusted with overseeing the Islamic financial sector, approving financial products, and setting rules and principles for banking transactions per Islamic jurisprudence.

Moody’s said the initiative by the UAE is credit positive for Islamic finance institutions because it addresses the sector’s main impediment to growth - the complexity and diversity of legislative frameworks and practices across regions and geographies, which creates additional risks and uncertainty in case of litigation. Malaysia’s central bank, Bank Negara Malaysia, also started implementing a revised Shariah Governance Framework last year to strengthen board oversight and the responsibilities of Shariah governance. However, standardisation p o s e s c h a l l e n g e s i n te r m s of implementation and adoption, particularly in realigning existing products, and AAOIFI Sharia Standard 59 has reportedly depressed Sukuk issuances in the UAE.

Driving ethical investing The challenging economic environment brought about by COVID-19 has created opportunities to accelerate and unlock the long-term potential of the Islamic finance sector. “The natural crossover between sustainable investing and Shariah-compliant social principles will appeal to investors whose investment decisions are guided by environmental, social and governance considerations, creating opportunities for the Islamic finance industry,” said Moody’s. The pandemic pushed “green” or ethical investing to the fore and the trend is expected to enhance the appetite for sustainable instruments as governments and corporates in key Islamic finance markets seek to diversify their economies from heavy reliance on oil revenues. The energy transition agenda across MEASA region is also expected to create opportunities to expand social Islamic finance instruments and green Sukuk products. However, adoption will likely remain slow given the additional complexity related to these instruments and core Islamic finance countries’ slow implementation of policies to manage the energy transition. Though not mutually exclusive, Shariah-compliant financial instruments

offer a framework that embodies the social and ethical values of ESG investing, offering investors in the Middle East and Southeast Asia the opportunity to adopt more sustainable and conscious investment strategies while tapping into the potential value of impact investing. “Islamic finance social instruments can help core countries, banks, companies and individuals economically affected by the pandemic navigate current conditions, with market participants eyeing Qard Hassan (Charitable Loan), Zakat (Zakah tax – obligatory almsgiving), Waqf (Charitable Trust), and Social Sukuk,” said S&P Global. Meanwhile, the issuance of green and sustainable Sukuk continued to grow in 2021, exceeding the $7 billion mark for the first time while issuance tenors also surged thanks to Indonesia and Malaysia’s debut 30-year certificates. Moody’s said that the demand from investors for these certificates will ensure a boost to issuance activity in the years to come and the rating agency expects a wave of new issuers to join the market. Green Sukuk and other sustainable Islamic finance instruments targeting social needs may appeal to investors with ESG objectives and could help make an even bigger impact if they are leveraged properly. Sustainable debt covers a variety of instruments, from the well-established green bonds to the fast-emerging category of sustainability-linked loans. Proceeds from green Sukuk issuance t ypically support investments in renewable energy or other environmental assets such as solar parks, biogas plants, wind energy projects as well as renewable transmission and infrastructure projects. “Green and sustainable Sukuk volumes expanded 17.2% year-on-year in 2021 to %15 billion, with the theme likely to remain prominent in 2022,” said Fitch Ratings. GCC Islamic banks are also seeing a growing frenzy for green bonds although the appetite is still in its infancy as more investors are committing to responsible investment. Nasdaq Dubai set a record mea-finance.com

ISLAMIC FINANCE

$23.1 billion debt listing last year and $11.9 billion of the total listings were Islamic bonds. Saadiq, Standard Chartered’s Islamic arm, also joined forces with the Malaysian Halal Development Corporation last November to launch a $100 million Islamic finance program aimed at funding SMEs and corporates in key halal markets including the UAE, Saudi Arabia and Bahrain. The Islamic finance sector continues to gain momentum with borrowers and investors globally, driven by an increasing understanding of the asset class and a strong alignment of Islamic Shariah core principles with ESG principles.

Sukuk issuance Islamic bond issuance this year is projected to stabilise or to be slightly lower after a record $205 billion in 2020 and five consecutive years of growth amid lower sovereign funding needs as higher oil prices and the economic recovery is likely to allow GCC governments generate fiscal surpluses, thus lowering the need to tap debt markets. Moody’s also sees interest rates hikes globally to deter some issuers from resorting to debt markets in 2022. However, higher issuance by financial institutions to support asset growth together with government refinancing needs and new issuers joining the market could partially offset the negative trend from higher oil prices and interest rates. Meanwhile, stronger financing growth in the Islamic finance sector is expected to continue in 2022 due to broader adoption and innovative structuring of Shariah-compliant products and new, fast-growing franchises in some Islamic banks compared to their conventional peers. GCC countries have grown in relevance for emerging market investors and several trends in the region such as economic diversification signal continued growth for Sukuk markets. Regional governments issued $35.3 billion Islamic bonds compared to $32 billion a year earlier while regional corporates’ Sukuk issuance

grew 8.5% to $21.9 billion from $20.2 billion in 2020, according to KAMCO Investment. Bahrain’s GFH Financial Group launched and seeded a $100 million Sukuk fund in February, following an agreement with Credit Suisse to offer financing and fund administration services across the GCC region. Riyad Bank, which is 43% indirectly owned by the Saudi government, sold $750 million in sustainability-linked Additional Tier 1 (AT1) dollar-denominated Sukuk in February to support its capital base and meet financial and strategic needs. The Saudi National Bank, the country’s largest bank by assets, also raised 750 million in debut ‘sustainable’ Sukuk last month after demand topped $3.2 billion. Saudi-based Islamic Development Bank (IsDB), a regular issuer in the capital markets, raised $1.7 billion in five-year Islamic bonds last October after the Sukuk drew more than $2.4 billion in demand. IsDB raised $2.5 billion in March 2021 with sustainability Sukuk finance projects including renewable energy. The multilateral lender also sold $1.5 billion in Sukuk in June 2020 to support its member states to mitigate the fallout from the pandemic. In the UAE’s Dubai Islamic Bank, the country’s largest Islamic lender, raised $750 million in five-year senior unsecured Sukuk in February after the debt sale drew more than $1.6 billion in orders. The UK issued a $686 million (GBP 500 million) sovereign Sukuk in its second foray into the Islamic finance market in March 2021, doubling the amount it raised from its debut Sukuk in 2014. Though Sukuk issuance is gathering steam outside of core Islamic finance markets in the Middle East and Southeast Asia, the market for green Islamic bonds remains small compared to the conventional Sukuk market. Overall, Moody’s expects Sukuk issuance to drop slightly to around $160 billion-$170 billion in 2022 from $181 billion in 2021 while S&P Global forecasted total Islamic bond issuance of about $140 billion–$155 billion this year.

Banking and Finance news in the MEA market

Islamic banking The economic recovery in Muslim majority countries including the Gulf region, Malaysia and Turkey is expected to boost credit growth and demand for Shariah-compliant products thus allowing Islamic banks’ asset growth to continue to outperform their conventional peers. “The market share of Islamic financing assets in core Islamic markets increased to 34.6% of total financial assets (including conventional bank loans) in September 2021, from 33% in December 2020 and 31.3% in December 2019,” said Moody’s. The retail focus of most Islamic banks will likely help preserve their asset quality going forward as retail asset quality is particularly resilient, thanks to the high proportion of borrowers who work in the public sector, prudent regulations and established credit bureaus. However, the current operating environment is likely to put more pressure on Gulf region Islamic banks and lead to more tie-ups to create new national or regional champions. “We expect further merger and acquisition (M&A) activity as many Islamic banks have weaker franchises which lack strong competitive advantages, particularly in pricing, cost of funding and growth opportunities,” said Fitch Ratings. In 2020, all M&A deals in the GCC region involved at least one Islamic bank.The merger of Saudi Arabia’s National Commercial Bank and Samba Financial Group into Saudi National Bank in April 2021 created one of the world’s largest Islamic banks along with Al Rajhi and Kuwait Finance House. The consolidation between Qatar’s Al Khalij Commercial Bank and Masraf Al Rayan last November also created one of the largest Shariah-compliant lenders in the region. The Islamic finance sector has evolved over the year and so too have the product structures as the industry moves to offer tailored features to meet the needs of a growing investor base. Industry experts expect the coordination between different Islamic finance stakeholders and the wider Halal economy to create new sustainable growth opportunities and contribute to shared prosperity.

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ISLAMIC FINANCE

Meeting the Potential Mohammed Dawood Head of Islamic Finance, HSBC, MENAT reflects a positive overall outlook for Islamic Finance in the region and beyond, encouraged by the application of technology, the growth of ESG considerations and an expected increase in Sukuk activity

Mohammed Dawood, Head of Islamic Finance, HSBC Middle East, North Africa & Turkey

illdigitaltransformation help to grow the market s h a re of I s l a m i c Finance in the region and the wider world? Digital transformation is revolutionizing the way that the banking sector conducts operations, making transactions and payments easier, faster and even more secure. But the Islamic finance sector still

Banking and Finance news in the MEA market

has much to do to fulfil the potential of its own digital transformation journey. Currently, the execution of daily Islamic finance transactions conducted by Islamic banks is reliant upon manual processes and is characterized by its use of a large amount of documentation. Applying new technologies, such as blockchain, to Islamic finance would speed up processing, reduce human error and provide a strong foundation for further growth of in market share. Over the past few years, we have seen the emergence of Islamic fintechs and roboadvisors in the MENA region and beyond. These innovations are crucial to Islamic finance maintaining and building market share, particularly in the GCC region and South-East Asia. In markets where Islamic finance is underrepresented, such as Western Europe or the United States, new technology will provide access to consumers who previously had no access to Islamic finance products and services.

Are Shariah-compliant social principles appealing to investors whose decisions are following ESG principles? There is significant alignment between ESG and Shariah-compliance principles,

Do you feel that the universal standardisation of Islamic Finance is a realistic prospect?

in particular the overarching principle of “do no harm” to the environment and its inhabitants. For example, in most financing syndications, a covenant is usually inserted into documentation to ensure that the obligor does not take any action which could harm the environment and lead to adverse legal repercussions for the borrower. As of today, most Shariah-compliant investors in the Middle East do not have a set of ESG criteria to adhere to beyond the “do no harm” principle. Instead, ESG-focused investors in Europe, Asia and the Americas have requirements which go beyond the “do no harm” principle. Such ESG-focused investors want the impact reporting of their investments to be done by the issuer of green or social Sukuk on a periodic basis. For example, the impact analysis needs to quantify the number of people who have benefited from a Sukuk, where the proceeds have been allocated to a public healthcare project, or the amount of carbon emissions reduced by the installation of a solar power plant in a city.

Sukuk documentation is expected to lead to quicker access to markets for issuers. High energy prices are also expected to contribute to increased liquidity within the GCC countries, which means that investors will be on the hunt for good investment opportunities including Sukuk issuances. We see the potential for the market to grow to around USD 40 billion worth of Sukuk issuances per year in the coming five years, as long as the drivers of growth mentioned above remain conducive.

How do you predict the rate of Sukuk issuance in the region will change in the coming five years?

WE SEE THE POTENTIAL FOR THE MARKET TO GROW TO AROUND USD 40 BILLION WORTH OF SUKUK ISSUANCES PER YEAR IN THE COMING FIVE YEARS

The volume of the international Sukuk market, comprising hard-currency Sukuk which can be bought by cross-border investors, hit an all-time record of USD 34 billion last year. The compounded annual growth rate in the past decade has been 12.6% per annum, representing a strong growth in volume. At the same time, the number of issuances has grown from nineteen issuances in 2011 to 48 issuances in 2021, representing a 153 per cent increase over a decade. We expect the volume of issuances to continue to grow as issuers become more familiar with Sukuk structures and seek to diversify their sources of funding from the traditional bond market. At the same time, further standardization of

In the current economic e n v i ro n m e n t , w i l l w e s e e increased M&A activity between Islamic Banks in the region? Whilst there has only been a handful of M&A transactions involving Islamic banks, this has been a very positive development in the growth of the Islamic finance sector. In the UAE, the acquisition

of Noor Bank by Dubai Islamic Bank has cemented its position as the largest Islamic financier in the Emirates and the second largest Islamic bank globally. In Qatar, M&A activity has resulted in the two of the top three banks in the country being Islamic, as a result of Islamic banks acquiring conventional counterparts. As Islamic banks seek growth opportunities within their domestic markets and beyond, this emerging trend of Islamic banks acquiring conventional banks may continue.

Islamic financial structures and contracts are not the same as their conventional equivalent. Even different shariah standards between Islamic financial institutions has led to many iterations of the same or similar product, as we see in the market today. In recent years there have been positive advances made in this space, primarily led by the International Islamic Finance Market (IIFM) – a global standard body for the Islamic financial services industry, focusing on standardising Islamic financial agreements, with the introduction of market standard contracts across Islamic hedging, money market, trade finance and collateralized financing structures. However, until such time that shariah standards and standardisation initiatives are consistently applied by all

relevant regulators of Islamic financial institutions, there will likely remain a tendency for bespoke contractual arrangements based on the preference of specific institutions and clients. Standardisation of Islamic finance contracts will ultimately enhance the market for Islamic financial products and services by introducing efficiencies into execution. This will lead to improved customer experiences, and it is something the Islamic finance market continues to strive towards. mea-finance.com

ISLAMIC FINANCE

Positive Progression Digital transformation allowing Islamic banks to take a lead over conventional; the inherent qualities of Sharia finance aligning with investors’ ethical concerns and increased capital markets activity in the sector. Khurram Hilal - Chief Executive Officer (CEO) of Standard Chartered Saadiq, shares his thoughts with MEA Finance about the prospects for Islamic Finance in the near future

illdigitaltransformation help to grow the market s h a re of I s l a m i c Finance in the region and the wider world?

Khurram Hilal, Chief Executive Officer (CEO) of Standard Chartered Saadiq

We see this as a great opportunity for Islamic banks to embark on the digital transformation journey and take the lead. If we look back a decade ago, the focus of Islamic banks was to develop products in order to be at par with the conventional offering. You can call it the era of “Product innovation.” Today, since Islamic banking is mostly at par with conventional banking in terms of product proposition, Islamic banks can now focus their efforts in taking the lead through “digital transformation.” In this context, we are starting to the see momentum in three areas (i) appearance of stand-alone digital banks, (ii) traditional Islamic Banks digitalising their client journeys and last but not the least (iii) the rise of the fintechs which are focused on specific

Banking and Finance news in the MEA market

parts of the financial eco-system such as digital payments, robo-advisory wealth management, crowd funding etc. This could be a game changer for the broader Islamic Finance industry as you are able leap frog the traditional challenge of limited reach by Islamic banks in the physical brick and mortar environment.

Are Shariah-compliant social principles appealing to investors whose decisions are following ESG principles? There is a strong overlap between Islamic Finance and ESG principles. For example, there is an underlying sense of social justice in Islamic finance as it aspires to promote the betterment of the society, the economy and the environment through prevention of harm and the attainment of benefits. For this reason, Islamic finance does not invest in companies dealing with gambling, alcohol, weapons, tobacco, etc. due to their potential negative impact on the society. Furthermore, there is also a strong focus on equitable distribution of wealth, job creation, financial inclusion and the greater well-being which are all the key principles of ESG.

How do you predict the rate of Sukuk issuance in the region will change in the coming five years? If you look at the development of the Sukuk market over the past fifteen years, the market has shown a consistent growth trajectory. Leaving aside a couple

of down years in terms of issuance volumes, the overall growth trend –both in terms of size and number of issuances - has been remarkably positive. The main factors supporting the market have been (a) the jumbo issuances from the governments in key Islamic markets in the GCC and South East Asia, (b) the

WE BELIEVE ANOTHER ROUND OF M&A ACTIVITY MAY BE GOOD FOR ISLAMIC BANKING INDUSTRY

growing funding and capital needs of Islamic Financial Institutions and (c) the increasing attractiveness of the Sukuk market for large corporates due to high investor liquidity. Going forward, we believe that the positive trajectory will continue – spurred by sovereign, quasi-sovereign and FI issuances in the international USD sukuk markets, as well as growth of the local currency capital markets in Malaysia and Saudi Arabia which are predominantly Islamic. We also believe geographic diversification through the entry of new issuers from non-traditional markets such as Africa will further boost the Sukuk markets.

In the current economic e n v i ro n m e n t , w i l l w e s e e increased M&A activity between Islamic Banks in the region?

THERE IS A STRONG OVERLAP BETWEEN ISLAMIC FINANCE AND ESG PRINCIPLES

some large financial institutions with a huge capital base and balance sheet to compete effectively in the regional and global markets. We believe another round of M&A activity may be good for Islamic banking industry – as the industry is still somewhat fragmented and dominated by local players. A large

We h a ve a l re a d y s e e n i n d u st r y consolidation in the past few years, more in the conventional banking space, but some in Islamic banking as well. These have mostly been spurred by the main shareholders which are either the governments or the sovereign wealth funds. These mergers have resulted in

regional or global Islamic institution with ability to underwrite large deals and support cross-border business and investment activity with presence in key Islamic markets would help further deepen and embed Islamic banking in the global financial system.

Do you feel that the universal standardisation of Islamic Finance is a realistic prospect? C l e a r l y sta n d a rd i s a t i o n h a s i t s benefits and is a topic which has been long debated in the industry. I am of the opinion that we need to adopt a balanced approach. Standardization has its advantages in areas where you have common structures and vanilla offerings for example, in retail banking and flow interbank or syndication business. However, as we get into more complex areas and new developments such as in financial markets, corporate finance and structured trade finance we need to assess the impact of standardization on the need to innovate. These are areas where Islamic finance still has a long runway, and we need to give the industry some space to innovate with new ideas and structures. mea-finance.com

ISLAMIC FINANCE

A Growth Trajectory Zeeshan Awan Head of Islamic Banking at NBF responds to questions from MEA Finance about the direction of travel and development of Islamic Finance in the world of today, highlighting digital innovation as a positive, the complimentary natures of Sharia principles with ESG principles and how standardisation could add to the growth of Islamic Finance

Zeeshan Awan, Head of Islamic Banking at NBF

illdigitaltransformation help to grow the market s h a re of I s l a m i c Finance in the region and the wider world?

We tend to agree on this. Digital transformation is impacting the dimensions of the financial market, where it is changing the way customers interact with financial institutions. In this setting, Islamic finance is part of this ecosystem and is being impacted too. Digital

transformation is already changing and improving customers’ digital experience and will further improve the efficiency of processes for financial institutions, thereby reducing costs and better pricing for customers. At NBF, we see ourselves as a financial partner for clients across their professional and business needs. Although many have seen an acceleration in digital transformation plans as a result of the pandemic, we have been on this

Banking and Finance news in the MEA market

path long before. In fact, we have made significant advancements in digitization resulting improved customer experience, enhanced efficiency and optimisation, improved security and better resilience. We are also at the forefront of many of the country’s efforts to become a cashless society. We went live with the Emirates Digital Wallet ‘klip’, a cashless payment application that allows customers to store, transfer and conduct payments in a seamless and secure manner.

That said, banks are required to maintain caution when navigating an ever-evolving environment with unprecedented risks and challenges. At NBF, we believe we can achieve this by leveraging our multi-sector expertise and acting as the financial partner for our clients.

Are Shariah-compliant social principles appealing to investors whose decisions are following ESG principles? ESG investing and Islamic investments may be united in one investment opportunity, given that they are both guided by principles of morality, transparency and fairness. Hence, it is possible for an investment to be both sharia compliant and ESG compliant. Islamic finance and ESG investing are complementary capital-raising and investment approaches with many shared principles, such as being a good steward of society and the environment. With many more similarities than differences, both offer products that serve Muslim and non-Muslim investors alike and both possess strong practices and policies that each can learn from the other.

How do you predict the rate of Sukuk issuance in the region will change in the coming five years? According to the recent “Fitch Rating” report, Sukuk volumes are expected to grow in 2022 and remain a key financing source in core Islamic finance markets. Growth will be anchored by robust Islamic investor appetite, funding diversification goals and Islamic-finance development agendas in a number of countries. We stand by this report predicting further

growth in the Sukuk issuance beyond 2022. Islamic finance is on the rise and the appetite for such financial instruments will be more appealing to investors in the coming five years.

In the current economic e n v i ro n m e n t , w i l l w e s e e increased M&A activity between Islamic Banks in the region? We have already seen an active M&A movement between regional banks in the UAE. This consolidation is generally seen to benefit the merged banks and the overall market structure in terms of stronger pricing power, more investment capability, lower funding costs and greater profitability. We expect further M&A activity in 2022 and the continuity of this consolidation amongst banks whether Islamic or not Islamic banks. According to “Fitch Ratings”, M&A activity

ISLAMIC FINANCE AND ESG INVESTING ARE COMPLEMENTARY CAPITAL-RAISING AND INVESTMENT APPROACHES WITH MANY SHARED PRINCIPLES

is expected to grow in 2022 as many Islamic banks have weak franchises lacking strong competitive advantages, particularly in pricing, cost of funding and growth opportunities, a prediction that we are in favour of.

Do you feel that the universal standardisation of Islamic Finance is a realistic prospect? To an extent yes. Standardization helps the industry players with quick solutions for the plain vanilla type of products. However, each market has its own dynamics. The market should develop broad standards and it should be left at the discretion of Shari’ah scholars to interpret these standards given the circumstances of the market. Universal standardisation of Islamic finance practices on the other hand helps the ESG investing. However, challenges of the “integrated framework” remain a key part of this equation to achieve better harmonisation. Addressing these types of challenges would facilitate the ongoing growth of Islamic Finance and its standardisation: the need for standardisation, establishing frameworks that facilitate green Sukuk issuance, and ensuring investor protection. mea-finance.com

MERGERS & ACQUISITIONS

The Case for Consolidation The banking system in the Middle East region remains highly fragmented making competition intense, creating perfect conditions for merger and acquisitions as banks positions themselves for improved economic conditions post-pandemic

he landmark merger between the National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank (FAB) in July 2016 sparked a deluge of consolidation in the banking sector across the Middle East. The structural characteristics of banks and financial institutions in the region are a diverse mix of conventional and Islamic entities, as well as being both retail-focused and corporate-aligned in their stance, which from a potential future merger perspective will offer value-added consolidations.

It is worth noting that growth in the Middle East banking assets is linked to regional GDP, which moves largely in tandem with oil prices. Despite the uncertainties surrounding the trajectory of COVID-19, regional economies are on the recovery path, driven by a recovery in oil prices, supportive government spending and comprehensive economic diversification initiatives. Last November, Moody’s said that stronger government finances benefit banks’ solvency, funding and liquidity due to the governments’ dominant role as key

Banking and Finance news in the MEA market

depositors, borrowers and shareholders in the Middle East’s banking system. Two years into the pandemic, 2021 closed with a wave of deal-making some of which have been in the making for some time as banks positions themselves for improved economic conditions postpandemic. While it is still difficult to decipher how the merger and acquisition (M&A) market may evolve in 2022, there are signs of life. The second wave of deal-making could begin when the full impact of the current challenging operating environment becomes visible. Fitch Ratings said that the fragmentation in the Middle East region banking system is greater compared to other emerging markets with many banks, resulting in strong competition and weak pricing power.

Driving synergies The Middle East region’s banking system remains highly fragmented making competition intense, and the situation is expected to intensify due to the shrinking

population in some countries after expatriates departed for their countries amid massive job losses in the past two years. If the creation of FAB paved the way for a wave of mergers across the Middle East, Emirates NBD’s takeover of Turkey’s Denizbank in 2019 triggered a wave of acquisitions as regional banks are increasingly expanding their operations to sustain growth. FAB offered to acquire a majority stake of “no less than 51%” in EFG Hermes Holding in February, a deal that values the Egyptian investment bank at $1.2 billion. However, industry players are saying FAB’s bid may be too low, and the Abu Dhabi-based lender may have to raise its bid given EFG Hermes’ immense influence over Egypt’s financial markets and supercharged growth of its fintech businesses. The potential deal is expected to be FAB’s second major transaction in the country after last April’s acquisition of Bank Audi Egypt. EFG Hermes is being advised by Goldman Sachs on the bid. The Bahraini banking system, in particular, is ripe for dealmaking and the authorities are reportedly supportive of consolidations, but sound profitability and a lack of common shareholders prevent obvious tie-ups. “Nevertheless, asset quality, profitability and capital pressures at some banks could result in more tie-ups in 2022,” said Fitch Ratings. Last year, Bank ABC agreed to buy Blom Bank Egypt in a deal valued at $427 million and the takeover, which is subject to regulatory approvals in Bahrain, Egypt, and Lebanon, is expected to close in Q1 2022. Jordan’s Capital Bank agreed to acquire 100% of Societe Generale Bank Jordan (SGBJ) in February, in its second foray within a year to expand its foothold regionally and domestically. The acquisition of SGBJ, which is 87.7% owned by Societe Generale de Banque au Liban, came 12 months after Capital Bank completed its takeover of Lebanese Bank Audi’s businesses in Iraq and Jordan.

The call by Lebanon’s central bank for local lenders to recapitalise by the first quarter of last year and repatriate part of deposits transferred overseas saw banks such as Bank Audi SGBJ and Blom Bank putting their units in other parts of the Middle East region up for grabs. Meanwhile, Oman’s Sohar International Bank received approval from the central bank to go ahead with the due diligence process for a potential merger with Islamic lender Bank Nizwa earlier in January 2022.

Success stories Banks in the Middle East region are facing the pressure of tighter liquidity and increasing competition amidst a more challenging macroeconomic backdrop and past mergers have demonstrated the merits of tie-ups. Last April, Saudi Arabia completed the tie-up between National Commercial Bank

owned Arab Investment Bank (aiBANK), transforming itself into an Egyptian universal bank, last November. EFG Hermes, which agreed to buy a 51% stake in aiBANK in May 2021, said the deal will make it an investment bank, a commercial bank and a platform for nonbank financial institutions. The scale achieved from these mergers is leading to improved liquidity management, enhanced profitability and reduced inefficiencies with better cost to income ratios. Similarly, the tie-ups also afforded these financial institutions wider international reach and are better placed to serve regional corporates with international ambitions, as well as international companies operating locally. SNB has been studying potential purchases of financial institutions in Europe and Asia as Saudi Arabia wants the lender to boost its presence outside the kingdom as part of Crown Prince

THE FRAGMENTATION IN THE MIDDLE EAST REGION BANKING SYSTEM IS GREATER COMPARED TO OTHER EMERGING MARKETS, WITH MANY BANKS RESULTING IN STRONG COMPETITION AND WEAK PRICING POWER – Fitch Ratings

(NCB) and Samba Financial Group (Samba) into Saudi National Bank (SNB), a banking giant with $244 billion (SAR 914 billion) assets in 2021. SNB is expected to be on equal footing with regional rivals Qatar National Bank and First Abu Dhabi Bank. Qatari lender Masraf Al Rayan (Al Rayan) completed its $50 billion (QAR 182 billion) consolidation with Al Khalij Commercial Bank (Al Khalij) in November last year. The tie-up created the Gulf state’s second-largest bank by assets and one of the largest Shari’ah-compliant banks in the region. Meanwhile, Egypt’s EFG Hermes also completed its takeover of state-

Mohammed bin Salman’s Vision 2030 economic diversification initiative. “In today’s era of significant economic change, companies continue to look for partners that can leverage their abilities for cross-selling, accessing new markets and customers and other synergies to enhance financial performance and gain competitive advantage, boosting the combined market share,” said KPMG. However, COVID-19 stalled the negotiations on the region’s only crossborder tie-up between Kuwait Finance House and Bahrain’s Ahli United Bank, which was postponed until further notice. The challenging operating environment mea-finance.com

MERGERS & ACQUISITIONS

might push some banks in the Gulf region to find a stronger shareholder or join forces with peers to enhance their resilience.

Catalyst for change The coronavirus crisis has created perfect conditions for dealmaking activity across the Middle East region. A surge in domestic consolidation, divestiture of non-core businesses and scope deals are likely to shape mergers and acquisitions in the future as banks seek to create larger entities that are financially more robust and efficient, capitalising on economies of scale to better diversify the concentration of risks that prevail in the sector.

Common shareholders 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 in a bid 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 reorganize their assets, including the tie-up between NCB and Samba, a deal that involved a common shareholder, the Saudi Arabian government through the Public Investment Fund (PIF). The Saudi wealth fund held a 44.29% shareholding in NCB and a 22.91% stake in Samba. The Qatari government was the ultimate shareholder in Al Rayan and Al Khalij, the country’s fourth and sixth largest banks, through the Qatar Investment Authority and other stateowned entities with stakes of 49% and 47% respectively, according to Moody’s.

Overbanked With 0% interest rates and an overbanked population especially in the Gulf region, the emerging operating environment may necessitate a consideration to accelerate any potential merger plans to take advantage of economies of scale and solidify customer bases.

THE FIRST WAVE OF M&A WAS DRIVEN BY SHAREHOLDERS’ DESIRE TO REORGANIZE THEIR ASSETS, INCLUDING THE TIE-UP BETWEEN NCB AND SAMBA, A DEAL THAT INVOLVED A COMMON SHAREHOLDER, THE SAUDI ARABIAN GOVERNMENT THROUGH THE PUBLIC INVESTMENT FUND (PIF) – S&P Global

Qatar has 2.5 million people being served by about 20 local and international banks, leaving smaller lenders at a disadvantage unless they can find a niche or competitive edge. “With over 50 financial institutions set against a population of 11 million, both retail and commercial banking customers in the UAE have a wealth of choice, ranging from international and local lenders, specialist and commercial banks, and private banks.” Deloitte Overall, the Middle East region had more than 160 banks serving a regional population of 58 million as of 2019 compared with a dozen commercial banks in the UK catering for a population of 66 million.

Market dynamics Banks in the Middle East are pro-innovation and industry experts see them continuing to dominate the emerging markets banking landscape as the sector goes more digital. The outbreak of the pandemic presented an opportunity for the global financial service sector to accelerate and strengthen the digitalisation of complex processes and end-to-end customer journeys across the front, middle and back offices, a trend that was already in full throttle in the Middle East. Deloitte said that the digitisation of banking services is another spur for consolidation, as larger banks are better equipped to navigate and capitalise on these market changes. For smaller regional banks, operating expenses are expected to increase significantly due to requisite

Banking and Finance news in the MEA market

investments in the new technologies to bolster digital strategies and improve operational efficiency, tasks that can be made easier with stronger balance sheets. Meanwhile, banks in the Middle East are still battling with problem loans owing to the property and retail slump, a crucial sector for regional economies which has been sluggish for years on the back of high supply vs a weaker demand. Real estate assets in the Middle East continue to face downward pricing pressure despite a rebound in 2021 and banks with a heavy concentration in the sector are also likely to report increased impairments on their books. M&A in such instances may serve among other things to diversify such risks and provide access to new platforms of capital. Last December, the UAE central bank said that it would use new criteria to supervise banks’ exposure to real estate by introducing an “enhanced framework” that covers all types of on-balance-sheet loans and investments, and off-balancesheet exposures to the sector. The emergence of new strains of COVID-19 has increased growth risks and policymaking challenges globally. However, the general business and operating environment for banks in the Middle East are expected to remain broadly the same this year as in 2021. On the M&A front, a saturated banking market and sluggish economic growth are expected to push regional lenders to look for expansion abroad.

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MERGERS & ACQUISITIONS

Increasing Activity Georges Massoud Head of M&A for the MENA region at JP Morgan tells MEA Finance that M&A will continue on its growth path, remaining important to the development shareholder value and regional capital markets, as well as attracting talent from around the world as many business sectors such as technology, expect a surge in activity

&A deal value for the Middle East in FY 2021 grew nearly 60% over the previous year. Can growth in the regional M&A market be sustained?

The current trends in Middle East M&A have clearly demonstrated a shift in the market dynamics. Although governmentsponsored deals still represent a considerable part of the total deal flow, we have recently witnessed large corporate transactions as well as a strong surge in public M&A deals which have been reshaping the market. The increase in FY 2021 was partially driven by a strong global macro-economic backdrop from the Covid 19 pandemic. That being said, the Middle East M&A market has been steadily growing over the past few years and is expected to continue in that trajectory in the long run driven by: strong government privatization and investment programs, growing economies and developing sectors (technology, etc.) and a constantly

are about to reach a relevant scale for M&A to become a more natural route for expansion.

W i l l c u r re nt M & A a ct i v i t y contribute to the long-term growth of the region’s capital markets?

Georges Massoud, Head of M&A for the MENA region, JP Morgan

evolving public market supported by ambitious initiatives (SPACs, etc.). M&A is becoming a regular topic of discussion during board meetings and is now more commonly used in the region as a tool to enhance shareholder value creation. Additionally, there are many companies in the region that have just reached, or

Banking and Finance news in the MEA market

Public M&A transactions have been on a continuous rise in the Middle East region. Saudi Arabia and the UAE have been leading the way over the past couple of years, however other markets such as Qatar and Egypt have also had their fair share in terms of market activity. Recent public transactions have been an important contributor to the development of the regional capital markets as they are now being used as blueprints for future transactions. Using publicly traded shares as a currency for transformative acquisitions is certainly a tool regional companies have become accustomed to use. We increasingly see regional companies exploring M&A as a tool for growth and value creation, before targeting an initial public offering.

Shareholders look for capital markets to monetize part of their shareholding or further fuel the growth potential of the company through new sources of funding.

Is there an increase in overseas M&A talent and expertise moving into the region’s financial centres? The Middle East has been one of the fastest growing regions from an M&A standpoint which has certainly helped attract talent from all over the world. Many financial institutions have been expanding their local capabilities by increasing their on-the-ground presence. Regulators are also encouraging financial institutions to expand their local teams, which clients also want to see as they continue to favour faceto-face meetings and interactions. The M&A activity in the region, and the evolving nature and complexity of the transactions, has certainly encouraged many individuals to consider a relocation to the Middle East. Local talent has also been an important contributor to the development of M&A in the region as we see more interest from young graduates to join the analyst programs and internship opportunities offered by banks regionally.

In deal values terms, how does cross-regional M&A activity currently compare with intraregional activity? According to Dealogic, cross-border transactions represented between 40-50% of the total announced deal value for MENA M&A transactions over the past five years. This is not surprising given the longstanding diversification strategy of Sovereign Wealth Funds into global assets, and more recently the flow of activity from international bluechip investors who are continuously seeking quality assets in the region. International private equities have been more active in the Middle East region in the past few years as witnessed by the various new entrants in the market.

Cross-regional activity is expected to continue its contribution to the M&A deal flow as companies continue to attract international interest, particularly companies who have demonstrated their ability to deliver sustainable returns and to quickly adapt to difficult market environments as witnessed during the financial crisis, and more recently the low oil price environment.

Which industry sectors are experiencing the most M&A activity in the region? Unsurprisingly oil & gas, chemicals (particularly with the Aramco/SABIC deal) and banking represent more than 50% of the total announced deal value for MENA M&A transactions over the past 5 years (according to Dealogic).

as it witnesses continued success in capital raising activity and is expected to continue its surge as we see more unicorns from the MENA region. Venture capitalists have played an important role in helping develop the regional start-ups and will continue to do so as these companies start exploring various options for growth and consolidation.

Is the regional banking sector ripe for increased M&A activity? The banking sector has been one of the most active in terms of M&A activity over the past five years. With stricter regulatory requirements and a more challenging market environment, banks have relied on consolidation to increase their scale and become more competitive. Saudi Arabia, the UAE

WE INCREASINGLY SEE REGIONAL COMPANIES EXPLORING M&A AS A TOOL FOR GROWTH AND VALUE CREATION

Whereas sectors such as transportation, TMT and utilities constitute the second largest component representing more than 25% of the total announced deal value. Over the past few years, real estate, consumer and healthcare have become more active on the M&A front, as regional companies are now scalable and are starting to look more seriously for shareholder value creation through expansion opportunities. Certain regional themes have also played an important role in shaping the M&A landscape such as food security and global trade, particularly in the GCC. Finally, the technology sector is now more visible on the M&A front

and Qatar have seen several sizeable bank mergers and acquisitions reshape their local landscape over the past few years. We believe there is still room for further consolidation given that many of the local jurisdictions remain quite fragmented, additionally there is an increasing appetite for cross-border acquisitions which we expect will also play an important role in reshaping the regional dynamics. Beyond conventional banking, we also see digital banking and financial technology play a critical role in driving M&A activity, particularly as these segments continue to showcase the need to invest in technology and explore new avenues of growth. mea-finance.com

MERGERS & ACQUISITIONS

Burgeoning M&A in the Islamic Finance Sector Taking a viewpoint from an Islamic Finance position, Mujtaba Khalid Head of the Islamic Finance Centre at the Bahrain Institute of Banking and Finance (BIBF) points to the expected high growth in this sector and describes why we could see increased M&A activity in the regions Islamic Banks, noting that increased Sukuk and bond issuing could be a forerunner to an uptick merger activity

&A deal value for the Middle East in FY 2021 grew nearly 60% over the previous year. Can growth in the regional M&A market be sustained?

Mujtaba Khalid, Head of the Islamic Finance Centre at the Bahrain Institute of Banking and Finance (BIBF)

Banking and Finance news in the MEA market

A recent study by law firm Baker McKenzie stated that the Middle East recorded strong M&A activity with 665 deals in FY 2021, from 439 witnessed in 2020. As the COVID restrictions start to ease in many jurisdictions within the Middle East, a lot of cross border travel as well as economic activity will resume, further catalyzing M&A activities. Although economic activity has picked up, there might still be a lag in dealing with the impact of COVID related difficulties. From an operational perspective, there are certain challenges faced especially by Islamic banks in the region that could act as a catalyst for increased merger activity; as a response to the COVID situation, all regional regulators responded to lessen the impact on the public. There were many stimulus packages announced,

regulatory capital requirements were reduced, and financial consumers were allowed to reschedule their interest/ profit payments. This was a well-received measure from the perspective of bank customers; however, it left the challenge of uncertainty for banks. Even though many banks have increased their loan provisioning ratios, there is no sure way for banks to know the amount of non-performing Loans (NPLs) on their books. This will be apparent once customers start making their interest/ profit payments. Coupled with the fact that Islamic banks will not be able to “benefit” from late payment charges (as all such fees must be written off to charity), Islamic banks face uphill operational challenges. Therefore, a merger between financial, especially Islamic financial entities could help shore up capital adequacy as well as consolidate resources to have sufficient buffers. Bigger entities could potentially serve a larger client base (especially c ros s b o rd e r re g i o n a l m e rg e rs ) diversifying country exposure of certain Islamic banks.

to their launch. SPACs must either take companies public or return raised capital to their shareholders in the event of deal failure or their dissolution. These flagship MENA SPACs include National Energy Services Reunited (NESR), which was the first energycentric MENA SPAC to list on the Nasdaq more than three years before the 2020 SPAC boom. Thus, becoming the first

W i l l c u r re nt M & A a ct i v i t y contribute to the long-term growth of the region’s capital markets?

Which industry sectors are experiencing the most M&A activity in the region?

This could be an interesting outcome of the current increase in M&A activities. There could be increased bond and Sukuk issuances to facilitate M&A activity as well as post-acquisition integration. We could see that regional PE space further mature and portfolios geared at acquisitions, especially in the FinTech space. Another interesting potential could be the use of SPACs, especially for attracting investments from the US. A SPAC is an investment vehicle that raises capital by selling shares in an entity that is not yet operational. ‘Blank-check firms’ as they are also known, list on the stock market and place raised capital in a trust. They then generally have two years to merge with a company, or a combination of companies that have been identified prior

I believe there is a lot of potential for M&As in the energy as well as the financial sectors. The Middle East, specifically the GCC is already overbanked, given the number of institutions relative to the population. Especially in Islamic banking, just within Bahrain, we have seen Ahli United Bank takeover Citi Bank’s retail portfolio and we have also seen Al Salam Bank take Ithmaar Bank’s retail portfolio.

growth. However, we did see this growth slow down to single digit in the past two or so years. Going forward, according to different reports including the Islamic Finance Development Report 2020, the industry is poised to grow by at least 50% in the next 5 years. I believe that there is a case for the Islamic finance industry to see more than 100% growth over the next 5 years - The

THE MIDDLE EAST, SPECIFICALLY THE GCC IS ALREADY OVERBANKED, GIVEN THE NUMBER OF INSTITUTIONS RELATIVE TO THE POPULATION company to successfully list several GCC companies from Saudi Arabia, Oman, Qatar, and the UAE on the Nasdaq via a SPAC.

Is the regional banking sector ripe for increased M&A activity? We need to zoom out and look at the Islamic finance industry as a whole and its pros pe cts – the Is lamic finance industry in the past has seen considerable growth. Over the past decade, it has averaged double digit

last time the Islamic Finance industry was at its peak was around 2009, just at the culmination of last the global commodity super-cycle. Many countries which feed the growth of Islamic finance are dependent on commodities - be it the GCC with crude oil, Malaysia with Palm oil or countries like Pakistan and Indonesia with agriculture. There has always been a strong correlation between commodity prices and the growth of the Islamic finance industry. Some can argue that the correlation might not be as strong, none the less, it is very much there. Given the current geo-political circumstances, as well as record oil prices, one can argue that the commodity super-cycle has already started. This will in-turn have a positive spill-over affect on the Islamic finance industry. Flush with liquidity, many Islamic banks will opt for either acquiring FinTech companies to accelerate their digital transformation strategy or merge/acquire existing Islamic banking operations, to shore up their retail consumer book size. mea-finance.com

DATA SECURITY BANKING TECHNOLOGY

CBDC, DLT, and cryptocurrency – the three formidable forces defining future digital economies Rajashekara V. Maiya Vice President and Head, Business Consulting Group, Infosys Finacle, spotlights on the potential role of CBDCs in the digital transformation journeys of financial institutions and the many opportunities for banks

Rajashekara V. Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle

bout 20,000 people in St Vincent and the Grenadines were evacuated when the island’s volcano La Soufrière erupted in April. Fortunately, their rebuilding and recovery efforts received timely support through DCash – a digital currency that people could use for payments and other banking transactions through a smart device. Only a month earlier, the Eastern Caribbean Central Bank (ECCB) had launched the world’s first retail central bank digital currency (CBDC) within a currency union. It has since extended its blockchainbased DCash in 5 member countries including St Vincent and the Grenadines. Although the idea of digital cash was first mooted in the 1980s, digital

Banking and Finance news in the MEA market

currency as a concept has gained wider acceptance in the past few years. In future, it might well lead to the next major disruption in financial systems, worldwide. As the IMF reports in its latest paper, central banks in a hundred countries are now exploring the idea of Central Bank Digital Currencies (CBDCs) for general public use. While CBDCs would serve as digital banknotes in the digital economies of the future, their increased acceptance is closely linked with the rise of distributed ledger technologies (DLT) and cryptocurrency in financial circles. Here we examine their impact and potential role in the digital transformation journeys of financial institutions.

The security net of DLT Recently, IBM reinforced its commitment to test and validate Hyperledger – an open-source project aimed at developing blockchain-based distributed ledgers – at a population scale. Such contributions by business leaders are reinforcing the case for DLT. In the past, hasty or badly planned digitalization ser ved to heighten concerns of cybersecurity for financial institutions. Today, for a bank undertaking

digitalization, DLT is proving to be a safe bet as it puts these concerns to rest while addressing possible vulnerabilities in the system. As a technology, it is becoming foundational – secure by nature and design, quick to deploy, highly reliable, easy to scale and more affordable too. In fact, infrastructure that has been constructed on DLT is considerably cheaper than comparable technologies of the past. Furthermore, DLT is driving innovation in banking transactions in the form of smart contracts. With the surge in digital banking transactions after the pandemic struck, banks have realized the urgency to move processes online entirely. Aiming for paperless, quicker and convenient interactions, everything from account opening and onboarding to loan approval and disbursement as well as account closures are done digitally. By introducing smart contracts into the mix, DLT is ensuring that the traditional paper-based contract is replaced by a secure digital format that is tamper-proof and properly authenticated. It leaves no room for fraudulent or dubious activities such as duplicate financing of invoices – a distributed network ensures all digitized bills are scanned and verified before being processed for payment.

of cryptocurrency remains shrouded in scepticism by regulatory authorities around the world. However, there is hope for the future of these currencies – as the technology underpinning cryptocurrency has immense potential to unlock several benefits for financial institutions. Contrary to popular assumptions, cryptography offers greater security of transactions and relationships with corporate and retail customers while mitigating the risk of fraud, considerably. Despite the fears over cryptocurrency, central banks in countries such as the Bahamas, China, Nigeria, India, the United States are considering the idea of their own digital currencies, with greater seriousness. In fact, a survey by the Bank for International Settlements found that 86 percent of central banks were studying the potential of CBDCs, 60 percent were experimenting with it, and 14 percent were launching pilot programs. What is leading this change in perspective? While the idea of government-issued currency in digital form is not new, DLT and cryptocurrency have led to an ocean of innovative possibilities in digital banking.

Decoding cryptography

Governments and banks – both stand to gain. They can collaboratively or as individual entities, use CBDCs as an effective instrument to improve transparency, tax payment, and stem the flow of black money in the shadow economy. This can lead to the birth of cleaner, healthier, balanced and better-regulated economic growth for the country. The greatest appeal of CBDCs, however, is how easily they can replace every format of banking that existed before. Person to person, person to

Over the years, there have been many barriers to the acceptance of cryptocurrency as a viable option to traditional currency. The central premise of cryptocurrency is that it is not governed by any central bank or government entity. Nor does it hold securities or gold reserves that are typical of traditional banks. There is no visibility into who owns or uses these currencies. Frequent incidents of fraud have created negative reports around cryptocurrencies among the general public. As a result, the promise

CBDC – the future backbone of a digital economy

Sources: 1. https://www.imf.org/en/News/Articles/2022/02/09/sp020922-the-future-of-money-gearing-up-for-central-bankdigital-currency 2. https://www.bis.org/about/bisih/topics/cbdc.htm 3. https://www.globalgovernmentfintech.com/dcash-digital-currency-to-aid-islands-recovery-from-volcanic-eruption/

merchant, person to government, merchant to merchants, government to governments – CBDC can be used instead of traditional currency. This widesweeping replacement has the potential to save costs of printing, maintenance and nationwide distribution that are all inherently expensive. Circulating currency notes at a country level, certain economies that are particularly susceptible to counterfeit notes can feel more secure as cryptography protects their digital currency and regulatory bodies will gain greater control over the currency that is in circulation. Individual banks will no longer need to run the expenses of replacing soiled/damaged physical currency or stocking up on crisp new paper money for their ATMs or branches. Digital currency can help governments make better headway in terms of financial inclusion – bringing into their gamut, the grossly underbanked segments of society. It is particularly relevant for Africa, South Asia and many such regions that do not have the wherewithal to put up physical banks for their masses. They can leverage their existing mobile and internet connectivity to offer the latest payment/banking solutions in the form of CBDCs, QR codes, UDID etc that are completely digital. International remittances for crossborder payments currently involve heavy charges. Banks can consider building a fully digital format using cryptocurrency that will remove these charges and make it more affordable for their customers.

What then is the future of digital banking? There is no denying that CBDC, DLT, and cr yptocurrency can unleash considerable opportunities for banking institutions – the speed and affordability of DLT, the fraud and risk mitigation capabilities and security of cryptography, the regulatory nature of CBDC. The three in combination can become a truly formidable force in securing digital economies of the future. mea-finance.com mea-finance.com

OPINION PIECE

Winning Combinations George Hojeige CEO of Virtuzone describes the flourishing M&A scene in the region, while highlighting that such activity is not just the preserve of big corporations, he shows that it can also be an opportunity for start-ups to add key strengths to their business

closer look at MENA’s M&A activities: Deconstructing successful M&A deals and exploring opportunities for start-ups

The recent year has been marked by a resurgence of economic activities in the region, signalling a positive trend towards widescale post-pandemic recovery. One such activity that has gained velocity over the last year is Mergers and Acquisitions (M&A) in the Middle East and North Africa markets, which recorded a total of 661 deals amounting to USD 99 billion in 2021. This represents a 66% increase from the 397 M&A deals made in 2020, valued at USD 85.2 billion, according to a report released by international accounting firm Ernst & Young. Concluding 303 M&A deals in 2021, the United Arab of Emirates ranked first when it came to volume, whereas the Kingdom of Saudi Arabia brought home the biggest M&A capital, with a value of USD 47.4 billion. The report also credited governmentrelated entities for executing the majority

George Hojeige, CEO, Virtuzone

Banking and Finance news in the MEA market

of the deals, which accounted for USD 62.6 billion (63%) of the total annual deal value. On the other hand, private equity participation also increased, with 165 deals in 2021 compared with 73 in 2020.

MENA’s outstanding M&A deals in 2021 Saudi Arabian Oil Company (Aramco) sealed one of the biggest M&A deals last year with EIG Global Energy Partners, one of the world’s established capital providers to the energy sector, and Mubadala Investment Company, a state-owned sovereign wealth fund in Abu Dhabi. T h e U S D 1 2 .4 b i l l i o n e n e rg y infrastructure deal gave the consortium of international investors a 49% equity stake in Aramco Oil Pipelines Company, a newly formed subsidiary of Aramco. Aldar Properties, one of the UAE’s biggest real estate developers, together with Abu Dhabi Developmental Holding Company (ADQ), a key holding company and strategic partner of the Abu Dhabi Government, made headlines in 2021 when they invested USD 388 million to acquire a majority stake (85.5%) in Sixth of October for Development and Investment Company (SODIC), one of Egypt’s leading real estate companies specialising in high-quality residential, commercial and retail property. Another prominent M&A deal finalised in 2021 was First Abu Dhabi Bank’s 100% acquisition of the Egyptian subsidiary of Bank Audi, a Lebanon-based bank and financial services company. First Abu Dhabi Bank, the largest bank in the UAE, reportedly has assets valued at USD 267.6 billion as of 2021. After completing its first international acquisition, FAB Egypt is expected to be one of Egypt’s l a rg e s t fo re i g n b a n ks b a s e d o n total assets. The common denominator in these M&A activities is that they place investors in a stronger industry position, give them access to new markets beyond their borders, and present opportunities to gain a larger global market share.

However, M&A activities are not purely to the benefit of multinational corporations and established businesses. Start-ups can also leverage the opportunity to scale their businesses, increase their capital, and adopt new technologies through M&A.

S c a l i n g t h ro u g h M & A : W hy start-ups should consider value creation through M&A deals A strategic M&A deal can help start-ups replenish their capital by giving them access to new funding sources, which can then fast-track the development and deployment of new products and services. Aside from fresh funding, M&A can open up opportunities for innovation through the adoption of new technologies and systems that were previously inaccessible or unavailable to the acquiring or target company. Star t-ups aiming to accelerate their growth and quickly expand their operations can turn to a carefully evaluated and executed M&A deal to increase their value as an organisation and significantly enhance their competitive edge in the market. For example, Facebook cemented its position as the dominant social media platform in the world when it acquired Instagram for USD 1 billion in 2012. Today, Instagram has over 1 billion users, is estimated to be worth more than USD 100 billion as a company – 100 times the price Facebook bought it for – and accounts for more than 36% of Facebook’s total revenues, according to recent figures. Ta c t i c a l M & As c a n a l s o p l a c e companies in a position to capture new markets and extend their global reach. In 2017, Amazon successfully entered the Middle East market by acquiring Souq – dubbed as the Amazon of the Middle East and the region’s largest e-commerce platform – for USD 580 million. Amazon has now established itself as an e-commerce powerhouse in the Middle East, with a total of 57 million visits every month.

The key to a successful M&A Having a clear vision and goal for any M&A transaction is a foremost requirement of a successful deal. According to an article published by Harvard Business Review, the failure rate for M&As is around 70% to 90% – and one of the potential major causes is that executives fail to correctly match candidate companies with the strategic purpose of the M&A. One of the golden rules of M&A is, therefore, to identify the long-term objectives of a company and meticulously examine an M&A deal and determine if it aligns with one’s overarching corporate strategy. Experts at McKinsey & Company, a management consulting firm based in New York, also advise that executives create an M&A blueprint that clearly outlines and communicates why the M&A is needed, where it will create value and how it will be integrated.

must likewise take the time to develop a concrete, comprehensive and scalable plan for implementation and integration. Guided by a clear and realistic timeline, the unification process must indicate the key objectives and milestones for integration and ascertain if the new company will be fully independent or absorbed. It must identify opportunities for improvement, optimisation and cost reduction, both within the acquiring organisation and the target company. This phase also presents the best opportunity for the two entities to maximise synergies, implement upgrades and seamlessly align in terms of operational, technological and cultural aspects.

M&A growth in a post-pandemic world Market analysts expect the tremendous growth in M&A activities to carry on in 2022, as organisations find and

A STRATEGIC M&A DEAL CAN HELP START-UPS REPLENISH THEIR CAPITAL BY GIVING THEM ACCESS TO NEW FUNDING SOURCES Another integral part of a successful M&A is performing due diligence and planning ahead. In addition to determining if an M&A deal matches a company’s corporate strategies, it is equally important to evaluate all the risks involved in the transaction and scrutinise the target company. Evaluate the target company’s financial statements, leadership and management committee, cybersecurity protocols, intellectual property assets and rights, its reputation and corporate image and even its company culture and talent pool. While finalising the terms of the deal and investigating the fine details of the agreement are crucial, executives

capitalise on growth opportunities in a post-pandemic world. In the United States alone, more than 60% of the executives surveyed by Ernst & Young say they intend to put M&A at the top of their growth strategies, especially as a means to achieve their long-term environmental, social and governance (ESG) and innovation targets. While experts do not expect 2022 to surpass the USD 5 trillion worth of global M&A deals made in the previous year, they anticipate another year of robust development amidst challenges, such as disruptions in supply chains, resource and labour deficiency, inflation of costs and the threat posed by Covid-19 variants. mea-finance.com

LIFESTYLE

The Enhanced Audi A8 and S8 Make Regional Debut

udi Middle East presented its latest flagship luxury models, the Audi A8 and S8 in Dubai exclusively ahead of their official market introductions. The company with the four rings has intensively redesigned the new flagship sedans to become the benchmark for luxury in its current fleet. The new highend headlights and taillights inspire with innovative functions and form the apex of the A8 and S8’s established technology portfolio, creating a contemporary and user-oriented experience – whether for passengers or drivers. Carsten Bender, Managing Director of Audi Middle East, commented “With the launch of the Audi A8 and S8, Audi is creating a benchmark that combines both

EXECUTIVE DIRECTOR AND PUBLISHER Kenneth Mitchen ken.mitchen@mea-finance.com GROUP COMMERCIAL DIRECTOR Nap Estampador nap.estampador@mea-finance.com Tel : +971 50 100 5488 DIRECTOR Andrew Cover andrew.cover@mea-finance.com Tel: +971 50 931 3236

the worlds of uber-luxury and performance. They are flagship models that promise a first-class experience for passengers and drivers alike, perfectly aligning our visions of progress and innovation in one.” The unveiling of the new Audi A8 and S8 models perfectly coincided with the surprise showing of the Audi skysphere, a concept car perfectly illustrating the brand’s vision for the progressive luxury segment of the future, with features that include autonomous driving, a revolutionary interior and a seamless digital ecosystem. The Audi A8 and S8 are sedans that represent status and exude authority – now that they have been reimagined, their exteriors are even more representative, confident, and athletic, while their interiors are more premium than ever before.

Both models are set to arrive in the region later this year, and are symbols of status and prestige for the brand. The fourth generation of the luxury sedan, which Audi introduced in 2017, raised it to a new level with respect to power, look, and equipment, remaining the progressive face of the brand until today. The A8 and S8 meet the needs of a changing customer base. In both models, the premium concept is defined first and foremost by an emotional and comfortable interior experience, coupled with new and established technologies. The S8 sees this exemplified from a pure performance standpoint, inspired by Audi’s racing heritage, combining progressive luxur y with dynamic athleticism.

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Banking and Finance news in the MEA market

FEATURE CONTRIBUTORS: Adrian Murdoch, Mushtak Parker, Walter Sebele editorial@mea-finance.com

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MEA Finance - April-May 2022

Articles inside

Winning Combinations

CBDC, DLT, and cryptocurrency – the three formidable forces defining future digital economies

Increasing Activity

Burgeoning M&A in the Islamic Finance Sector

A Growth Trajectory

The Case for Consolidation

Positive Progression

The Expanding Payments Universe

Meeting the Potential

Emerging Stronger While Pivoting To Thrive

Empowering Women to Take Control of Their Wealth

Saudi Real Estate Refinance Company (SRC) successfully closes its SAR 10 billion Domestic Sukuk Program

The Broadening Appeal of Islamic Finance

The Right Combination

Saudi Arabia Means Business