The new standard in low-value international payments.
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You are reading the May 2023 issue of MEA Finance, to which you are warmly welcomed. For the trivia buffs among you, the month May derives from the Latin word Maia, referring to the ancient Goddess of Growth and Increase. So, it is fitting that in this issue of MEA Finance, the theme of growth and increase runs through the following pages.
The region is alive with growing businesses and financial institutions, some of whom are set, in the coming years, to make a bigger mark, expanding into the wider world as global business and commerce entities. The nations of the GCC, aware of the very important role of SMEs and startups in their respective economies, are developing programmes to foster the growth of small and new businesses, but even with digitisation and neobanks improving small businesses access to financing, “despite these advancements, the banking industry as a whole still has a long way to go,” comments George Hojeige, CEO of Virtugroup. Read about how this key sector of the market is being encouraged from page 32.
The cover story for this issue features our interview with Dr. Adnan Chilwan, Group CEO of Dubai Islamic Bank. In our discussion, Dr. Chilwan describes the ongoing growth of Islamic banking and finance, explaining that Sharia principles underpin its inherent strengths which will become more widely apparent as we increasingly turn to more ethical and sustainable mindsets, “The growth of Islamic finance will inevitably take place in tandem with a growing appetite for ethical, fair, and transparent financial services.”
From page 42 we provide an overview of banking in the GCC, looking at why the sector remains largely unscathed by the current global economic straits and indeed look set to progress into a brightening future, “The region is well positioned to outpace global growth, and we are excited about the opportunities ahead of us in the region”, says Subhradeep Mohanty, Regional Chief Financial Officer, Africa & Middle East at Standard Chartered Bank.
This month our Market Focus is on Bahrain and how the country’s implementation of reforms and the dependable nature of its financial sector are both part of an overall picture of positive momentum, with economic activity set to improve in the near term. Then, from page 14 we look at the growth of the wealth management sector in Egypt, and extending our stay with the country for a little longer, from page 24 we overview the burgeoning digital payments scene here and what is behind this growth.
Starting on page 18 we once again take a look into the banking technology scene in the region and how this is increasingly calling for banks that can both identify and swiftly respond to the needs of clients. Fortunately, Deepak Kunhikannan, Head, Sales, TCS Financial Solutions, MENA, tells us that , “The advent of open APIs has made partnering and ecosystem collaboration much easier.”
Finally, our opinions this month, from page 48, are provided by Rajesh Nagpal, Director Financial Services at GBM, who discusses how Hybrid Cloud is key to unlocking innovation in banking, and Vijay Oddiraju, CEO of Volante Technologies, highlighting the importance of payments modernisation.
So, knowing that the proverb “Great oaks grow from little acorns” means that great enterprises have modest beginnings, we hope that this May issue helps grow and increase your understanding of the great potential of our region’s commercial and banking future.
6 UAE announces launching Domestic Dirhams Islamic Treasury Sukuk (T-Sukuk) with size of AED 1.1 billion
8 Jordan Ahli Bank becomes first in the Middle East to integrate AI to customer service with “ahliGPT” MARKET
10 Stepping into the Limelight
14 Preparing for Accelerated Change
18
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to developing capital market activities and consolidating its position as a global financial hub. This issuance reaffirms the strength and stability of the financial system and the confidence of local and international investors in the UAE’s ability to develop the financial sector in accordance with monetary policies and strategic plans.”
The United Arab Emirates, represented by the Ministry of Finance (MoF) as the issuer and in collaboration with the Central Bank of the UAE (CBUAE) as the issuing and paying agent, has announced launching a dirham- denominated Islamic Treasury Sukuk (T-Sukuk), with a benchmark auction size of AED 1.1 billion.
His Excellency Mohamed Bin Hadi Al Hussaini, Minister of State for Financial Affairs, reaffirmed the UAE’s keenness to strengthen the Islamic economy and build a pioneering investment infrastructure to boost the Islamic economy as one of the key pillars of the national economy.
Additionally, His Excellency emphasised that issuing the T-Sukuk in local currency will contribute to building a local currency bond market, diversifying financing resources, boosting the local financial and banking sector, as well as providing safe investment alternatives for local and foreign investors. His Excellency also noted that this issuance will help build the UAE Dirham-denominated yield curve, thereby strengthening the local financial market and developing the investment environment.
His Excellency Khaled Mohamed Balama, Governor of the Central Bank of the UAE, also emphasised the
importance of issuing Islamic treasury sukuk in developing local sukuk markets, diversifying financing resources and strengthening the infrastructure to support investment options and alternatives that are compatible with the provisions of Islamic Sharia, in a way that contributes to the development of the Islamic financial sector, improves the investment environment and solidifies the UAE’s position as a leading global hub in the Islamic finance sector.
His Excellency added: “The issuance of Islamic treasury sukuk comes within the framework of the UAE’s commitment
The T-Sukuk will be issued initially in 2/3/5-year tenures; followed by a 10-year sukuk at a later date and will be denominated in UAE dirhams to develop the local bonds debt market and help develop the mid-term yield curve.
The Ministry of Finance and the Central Bank of the UAE work with relevant government entities and international financial bodies to ensure best practices were followed when structuring the T-Sukuk. This allows for further development of Islamic finance in the country and cements its position as an international Islamic economy hub.
The structuring of Islamic Sukuk has been approved by the Higher Shari’ah Authority at the CBUAE, which cooperates with the relevant authorities to standardise and unify the practices of Islamic financial institutions to be compatible with internationally recognised Shariah standards and best practices.
The Ministry of Finance has published a robust Primary Dealers code and onboarded eight banks namely Abu Dhabi Islamic Bank (ADIB), Dubai Islamic Bank (DIB), Abu Dhabi Commercial Bank PJSC (ADCB), Emirates NBD, First Abu Dhabi Bank (FAB), HSBC, Mashreq and Standard Chartered as Primary Dealers to participate in the T-Sukuk primary market auction and to actively develop the secondary market.
The structure of Islamic sukuk was approved by the Supreme Sharia Board with the aim of standardising and unifying the practices of Islamic financial institutions in order to comply with internationally recognised Sharia standards and best practices
and the bank’s commitment to innovative technologies, emphasising the great impact AI has on making customer service more efficient. He also expressed his optimism in the future of AI in the banking industry, stating, “The future of banking lies in harnessing the power of technology to better serve our clients.”
Jordan Ahli Bank’s adoption of AI technologies in customer service is an important step towards strengthening its position as a leading bank in the region and confirms its commitment to providing modern banking innovations and solutions that exceed customer expectations. The initiative will reflect positively on the development of the financial services sector in the Middle East and enhance the bank’s ability to compete in a growing and developed market.
The pioneering step reflects the bank’s vision to integrate AI into its operations and improve the quality of services. “ahliGPT” provides customers the opportunity to get quick and accurate answers to their queries as well as problems related to banking and financial services, saving time and effort for both bank clients and employees.
The move is part of Jordan Ahli Bank’s continued efforts to enhance its operations leveraging new technologies, as it seeks to improve the experience of its customers by adopting the latest
innovations and focusing on enhancing the capabilities of its employees to ensure the provision of high-quality services that will help it keep pace with the rapid developments in the world of AI and financial technology. Additionally, the bank is working to improve the privacy of customers by implementing the latest security standards in the use of AI technologies that will guarantee the protection of customer information and transaction details.
Jordan Ahli Bank CEO and General Manager Dr. Ahmad Al-Hussein shared his excitement about this integration
It also marks an important turning point for the bank in its quest to lead in providing innovative and cuttingedge financial services, making it an inspiring model for banks and other financial institutions in the region to adopt modern technologies to improve customer experience. The financial services sector in the Middle East is expected to witness further innovations and developments driven by artificial intelligence and digital technology in the near future, with Jordan Ahli Bank playing a key role in encouraging this development and promoting competition and economic growth.
As the first bank in the region to adopt ahliGPT, Jordan Ahli Bank has paved the way for a new era of customer service in the Middle East banking industry.
Jordan Ahli Bank launched its new artificial intelligence (AI) system “ahliGPT,” becoming the first bank in the Middle East to embrace AI in its customer service
Bahrain boasts a relatively diversified economy, a beautifully regulated financial sector, a welleducated workforce and a low-cost trustworthy investment hub
Bahrain’s economy enjoyed a standout year in 2022 and the kingdom remains relatively insulated from the global economic crisis, elevated inflation and high-interest rates, as the economy is projected to grow by 3% in 2023. The combination of high oil prices, the benefits of earlier expenditure and tax policy reforms and continued non-oil growth will be expected to improve the country’s overall fiscal balances over the medium term.
The International Monetary Fund (IMF) applauded the government in Manama for its strong commitment to the economic reform agenda outlined in the Gulf state’s recovery plan and the revised fiscal balance programme.
With the global Brent oil benchmark closing last year near $80 per barrel after earlier skyrocketing to $100, the current crude price outlook has created an ideal environment for Bahrain to proceed with ambitious reforms under favourable macroeconomic and financing conditions.
Global economies have been grappling with a multitude of shocks—from the recent financial crisis to geopolitical tensions, a meteoric rise in inflation and the subsequent monetary policy tightening—that elevated uncertainties. However, like other Gulf Arab states, a boon for Bahrain is low inflation as prices of consumer goods are controlled by government subsidies and price caps.
The urgency of transitioning to a greener economy cannot be overemphasised as Bahrain’s public finances deteriorate and a sustainable global future beckons. Though hydrocarbons account for 18% of the GDP and 75% of government revenues, the kingdom has taken significant strides to diversify its economy over the past two decades.
Bahrain boasts a relatively diversified economy, a beautifully regulated financial sector, a well-educated workforce and a low-cost trustworthy investment hub. It also has some very useful friends.
The country’s banking system remains relatively resilient with regulations broadly in line with regional peers. Earlier this year, S&P Global projected that Bahrain’s banking sector would benefit from interest rate hikes, assuming the sector adopts a pragmatic approach by not reflecting the rate increase systematically which could cause borrowers to default.
Bahrain enjoyed a strong finish to 2022 after its economy grew at the fastest pace since 2013, driven by an acceleration in non-oil growth. Overall economic output expanded nearly 5%, driven by 6.2% growth in the non-oil sector, higher than anticipated by the kingdom’s recovery plan that was unveiled in 2021 in response to the pandemic.
SICO, a regional asset manager and investment bank, projected that Bahrain’s real GDP would exceed $34 billion (BHD 13 billion) in 2022 and 2023. The country’s oil GDP posted a remarkable 33.7% annual growth in nominal terms last year, underscoring the surge in oil prices, which saw the Brent benchmark averaging $100 per barrel compared to $70.7 for 2021.
Last year’s oil boom raised the prospects of significant budget surpluses for all Gulf Arab states including Bahrain –which is often seen as one of the weakest links in the oil-rich region. The kingdom is optimistic that it could beat its target to balance books by 2024 as higher oil prices and an economic rebound boost government coffers.
Bahrain’s preliminary financial estimates for 2022 showed that the deficit plunged by 85% to BHD 178 million compared to the budget deficit estimate of BHD1.185 billion, according to a statement from the country’s finance ministry. SICO said Bahrain’s narrowing deficit and growing non-oil revenues reflect the Gulf state’s diligence in meeting the targets it has set in its fiscal balance strategy.
The government said in April 2022 that it will resume making payments to the country’s reserve fund, doubling
the amount it contributes at oil prices over $80 a barrel, as it seeks to build up savings that were tapped to mitigate the fallout from the pandemic.
The authorities committed to put $2 into the Future Generations Reserve Fund (FGRF) for each barrel of oil sold at over $80, $1 when oil is over $40 and pay $3 if it exceeds $120. The IMF projected in June 2022 that Bahrain’s economic recovery will continue at a
tourism, housing as well as transport and logistics and energy. The projects include the building of five offshore cities, the country’s metro train and the expansion of Bapco’s oil refining capacity.
Meanwhile, the upgrade of the Bapco refinery, which will see production rise from the current level of around 240,000 barrels per day (bpd) to around 400,000 bpd by early 2025, is also expected to fill the government’s coffers.
moderate pace while acknowledging headwinds stemming from the slowing global economy, geopolitical tensions and tightening global financial conditions.
Bahrain unveiled its strategic projects plan in October 2021 that seeks to catalyse over $30 billion of investments and a regulatory reform package designed to support $2.5 billion of foreign direct investment by 2023.
The Gulf state’s investment promotion agency, the Bahrain Economic Development Board (Bahrain EDB), attracted a record $1.1 billion in direct investment in 2022. The investments from 88 companies are projected to generate over 6,300 jobs in the country over the next three years. Bahrain EDB seeks to attract $2.5 billion in direct investment this year.
The country’s economic recovery plan is aimed at bolstering domestic employment and attracting investments in strategic non-oil sectors including
Bahrain secured a $10.2 billion financial lifeline from its rich Gulf neighbours, the UAE, Saudi Arabia and Kuwait, in October 2018 to help cope with high debt levels and budget deficits. “We estimate Bahrain received $8.2 billion over 2018-2021, with an additional $1.4 billion and $650 million to be disbursed in 2022 and 2023, respectively,” said S&P Global.
Bahrain has a total of around $2.5 billion of debt maturities in 2023, including a $1.5 billion bond maturing in August. The kingdom is reportedly tapping the international debt markets for the first time since 2021, taking advantage of a decline in its borrowing costs and a surge in oil prices.
The relationship between Bahrain and its GCC neighbours remains strong. The country is likely to receive full disbursements under the GCC Support Package and there remains room for additional financial support beyond the program’s expiration this year.
The favourable oil markets have improved Bahrain’s fiscal and external
ECONOMIC ACTIVITY IS PROJECTED TO CONTINUE A MODERATE REBOUND AND THE FISCAL AND EXTERNAL POSITIONS WILL IMPROVE CONSIDERABLY IN THE NEAR TERM. OVER THE MEDIUM-TERM, GROWTH IS SET TO STABILISE AT 3%
– The IMF
positions for now, while the implementation of budgetary consolidation measures has helped moderate the government’s debt.
Bahrain has been implementing a series of reforms including increasing VAT, offering permanent residence to some foreigners and privatising some government assets, as the government seeks ways to bolster public finances and non-oil growth, balance its budget and stem government debt.
The government doubled VAT to 10% in January 2022 and SICO attributed the increase to a growth in the country’s nonoil revenues, which soared by 28% yearon-year to reach BHD1.065 billion in 2022.
The passing of the VAT law in the country represents a positive shift to a more balanced fiscal consolidation plan. S&P Global expects the recent increase in tax to contribute receipts of about 3.3% of GDP over the medium term, up from about 1.6% in 2021.
Earlier in April, Bahrain introduced a new golden licence offering benefits to companies bringing large-scale investment projects to the Gulf state. Major investment and strategic projects that will create more than 500 jobs in the country or whose value exceeds $50 million will be eligible for the licence.
The Gulf state unveiled a permanent residency visa scheme in February 2022 to attract talent and investment, part of a growing trend in the region as states are offering more flexible and longer-duration visas. The golden residency visa will be renewed indefinitely and gives the holder the right to work in Bahrain, unlimited entry and exit and residency for close family members.
Bahrain is reportedly considering selling stakes in state-backed entities including Nogaholding, which owns the country’s oil and gas assets, as the government in Manama is opening onceclosed industries to foreign investors.
The strategy mirrors initiatives that are being implemented in Saudi Arabia, Bahrain and the UAE. Saudi Arabia
divested a stake in Aramco in an initial public offering in 2019 and transferred an $80 billion stake in the oil major to the Public Investment Fund in February 2022. Abu Dhabi National Oil Company has been floating its units over the past two years including Borouge, Fertiglobe, ADNOC Drilling and ADNOC Gas.
Bahrain’s financial services sector is another dependable performer. The Central Bank of Bahrain (CBB) increased its key interest rates by 25 basis points (bps) late in March following the US Federal Reserve’s hike of the same size as the dinar is pegged to the dollar.
“The exchange rate peg remains an appropriate monetary anchor and the CBB should continue to follow the Fed
competition from digital attackers will likely increase shareholders’ appetite for consolidation to enhance the resilience of banks’ financial profiles.
S&P Global said investments in innovative technologies and the use of digitisation to improve operations will be a key focus area for Bahraini banks in 2023.
Earlier in 2023, Bank ABC said it had completed the merger of its Egyptian business with BLOM Bank Egypt. The deal tripled Bahraini lender’s market share in Egypt to create a bank with total assets of $2.5 billion (EGP 67 billion). Kuwait Finance House completed its acquisition of Bahrain’s Ahli United Bank (AUB) last October—a rare cross-border tie-up that had been almost four years in the making.
AUB completed the takeover of Citi’s Bahrain consumer business in December.
tightening cycle to stem capital outflow pressures,” said the IMF.
S&P Global projected at least four to five hikes in 2023 as inflationary pressures have soared to record highs forcing the Federal Reserve and other global central banks – European Central Bank, Bank of England and Swiss National Bank – as the fight to wrestle inflation back to manageable levels seems to be far from over.
Banks in Bahrain, like their peers across the GCC, recorded higher profits in 2022 on the back of improved operating conditions marked by economic recovery and the central banks’ move to tighten monetary policy. However, pressure on small banks’ profitability, alternative delivery channels and growing
The deal includes the Wall Street lender’s retail banking, credit card and unsecured lending businesses but excludes Citi›s institutional businesses.
Bahrain’s Al Salam Bank completed the acquisition of select assets from Ithmaar Holding in a $2.2 billion deal that comprise the entire consumer banking business of Ithmaar Bank, a 26.19% stake in Bank of Bahrain and Kuwait and a 55.91% shareholding in solidarity Group.
Though Bahrain has a friendly investment climate, and the government has taken significant strides to diversify its economy over the past two decades, there is more work to be done. The challenge facing the kingdom is that its proven oil reserves are low, and the cost of extraction is high.
WE ESTIMATE BAHRAIN RECEIVED $8.2 BILLION OVER 2018-2021, WITH AN ADDITIONAL $1.4 BILLION AND $650 MILLION TO BE DISBURSED IN 2022 AND 2023, RESPECTIVELY –
S&P Global
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Egyptian private banks are being confronted with the task of balancing the traditional approach to risk management with the need to respond quickly to the massive changes to their operating environment
Egypt’s private banking sector was already feeling pressure to revitalise even before the pandemic hit. Now that the confluence of the global shocks generated by the global banking crisis, the war in Ukraine and the sustainability drive have accelerated changes in customer expectations, the industry will need to accelerate its transformation.
The combination of these trends together with slowing growth will require the private banking sector to accelerate its transformation.
The industry is evolving globally and regionally, making the Egyptian market no exception.
The prolonged pandemic has created some exceptional challenges for all industries and in private banking, it is driving pre-existing trends as wealth managers are changing the way they deliver advice and serve clients.
Meanwhile, the changes in demographics, technology, environment and social behaviours have set the ground for rapid transformation in the private banking industry. Lombard Odier said that wealthy millennials are entering a transitional—some might say ‘maturing’ – phase, especially insofar as their wealth management and private banking relationships are concerned.
The Swiss banking group identified sustainability, investments, communication, knowledge and network as HNWI millennials’ top five private banking expectations. Private banks are being confronted with the task of balancing the traditional approach to risk management with the need to respond quickly to the ongoing health crisis that has created massive changes to their operating environment.
Over the past years, sustainability has emerged as the biggest dominating trend in private banking. “With the proliferation of investment products, digitalisation, the heterogeneous nature of client bases and the need to integrate strong sustainability criteria into their business, the private banker’s role has become even more complex,” said BNP Paribas.
Sustainability is increasingly attracting attention from both investors and lawmakers alike, thanks to the strategy’s promise of utilising a range of non-financial information to better align finance with long-term value and societal values.
Sustainable investing has come a long way and had over the years gained more prominence among millennials. “Born between the early 1980s and the
mid-1990s, some millennials are now approaching their forties – an age when their investment and wealth management preferences are becoming firmer,” said Lombard Odier.
The increasingly growing demand for sustainable investing from investors is driving some private banks to develop sustainable investing strategies as public attention toward the global sustainability agenda is also rising.
As such High-Net-Worth Individuals (HNWIs) in Egypt are increasingly aware
family wealth are uniquely positioned to leverage private capital to drive growth in the ESG sector by supporting long-term societal goals and ambitions.
Compared to institutional investors that may be subject to commercial policies or have limited decision-making due to mandated trusts, HNWIs and family offices can be flexible in how they approach investments in terms of size, geographies and asset classes.
The overwhelming majority of studies in the field of sustainable investing show
of sustainable investment trends and want to understand how their investments can drive change against a backdrop in which climate change, good governance, culture and strong accountability are now central to many post-financial crisis conduct frameworks.
BNP Paribas said that clients have become increasingly demanding in the complex world of private banking and wealth management, driven by younger investors including millennials, NextGen and Gen Z clients.
Wealthy individuals and family offices are ideally suited to the kind of approach that the investment theme requires owing to the group’s large pools of capital and multi-generational objectives that support a long-term strategy. Earlier in January, the World Economic Forum (WEF) said in a report that HNWIs and
that the outbreak of COVID-19 ramped up interest in sustainable investments. McKinsey said that for sustainable investment strategies to succeed in this dynamic operating environment, ESG objectives or considerations must be derived from a financial institution’s overall mandate.
JPMorgan Chase & Co. unveiled its carbon reduction goals for clients in line with the Paris financing commitments last year as the investment bank is facing mounting pressure from shareholder activists to align its funding activities with its climate change commitments.
Meanwhile, Standard Chartered set new targets for reducing its funding to carbon-intensive sectors by 2030, including plans to mobilise $300 billion in green and transition finance as part of the bank’s broader goal to reach
THE EMERGENCE OF A TAILORED AND PERSONALISED MODEL UNDERPINNED BY DATA CAN BE OBSERVED ACROSS INDUSTRIES AND FOR WEALTH MANAGERS, CONTINUOUS ACCESS AND AUTOMATIC HYPER-PERSONALISATION ARE EXPECTED TO SHIFT THE TERMS OF SUCCESS
– McKinsey
net-zero emissions for itself and its clients by 2050.
However, sustainable investing is subjective because there are as many clients as there are sustainability preferences and for impact investments to inject new capital to help deliver Egypt Vision 2030, the private banking sector is the most effective option.
The private banking industry is undoubtedly one of the high-growth engines in the broader financial services landscape. To thrive in this new digitally transformed industry, Egyptian private banks need to think bigger, make smart decisions and put to work the experience, tools and technologies that will both protect and grow their businesses.
Once a laggard in the adoption of technology, wealth management is accelerating digitalisation, deploying artificial intelligence (AI), Big Data, robotics and other technologies to enhance client’s experience and trust—which is central to private banking relationships.
Private banking firms have remained largely on the sidelines in an industry where digitalisation has transformed much of the financial services and products. The industry is typically seen as embodying old-fashioned values and providing discrete, tailored service attributes that remain valuable parts of the business, but McKinsey said for many clients, these qualities are “no longer sufficient.”
The shift to digitisation is inevitable and industry experts expect it to radically transform private banking in the coming decade. The pandemic forced wealthy clients to accelerate their adoption of digital technologies and seems certain to lead to permanent changes in the behaviour of both firms and investors.
“Wealth managers are unlikely to be able to serve modern clients effectively without a digitised operating model,” said McKinsey. Digitalisation in the private banking and wealth management sector is being driven in part by changes among clients.
Though the typical client in a developed market today is around the age of 65 years and is fairly comfortable with digital technology, shifting demographics, evolving client behaviours, the rise in new innovative technologies and emerging disruptive competition are all reshaping the industry.
A coherent digital transformation plan will give firms a head starts in leveraging stronger client relationships, reducing operating costs and enhancing risk management and regulatory compliance capabilities. “The changes are helping firms meet their regulatory obligations, boosting the productivity of relationship managers and lifting compressed margins,” McKinsey added.
Wealth managers are constantly looking for new ways to grow their business by assessing the new potential market and product expansion opportunities across client segments.
The growth of ‘automated wealth managers’ or Robo-advisors is revolutionising the wealth management industry with unprecedented force. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, Robo-advisors are growing at a rapid pace, doubling their assets under management every few months.
“By 2030, up to 80% of new wealth management clients will want to access advice in a Netflix-style model—that is, data-
driven, hyper-personalised, continuous, and potentially, by subscription,” said McKinsey. The emergence of a tailored and personalised model underpinned by data can be observed across industries and for wealth managers, continuous access and automatic hyper-personalisation are expected to shift the terms of success.
Across the Middle East, private banking had undergone a dramatic shift long before the pandemic as regulators are embracing digital financial advisories. The region, one of the world’s hotbeds of wealth creation, has also seen an acceleration in trends relating to succession planning, alternate investment vehicles such as private equity, wealth preservation and an increased interest in sustainable investing.
RBC Wealth Management said that in times of market turbulence, investors may wonder how long the roller coaster ride will last and whether they need to get off at the next stop. “Stereotypical” millennials, at times thought to be indulgent and unprepared financially for the future, have in recent years outgrown that reputation and instead grown into their wealth.
The proliferation of investment products, digitalisation, the heterogeneous nature of client bases and the need to integrate strong sustainability criteria in business is making the role of private bankers even more complex. Banks must be able to offer HNWI clients appropriate and personalised advice on sustainable investment issues.
WITH THE PROLIFERATION OF INVESTMENT PRODUCTS, DIGITALISATION, THE HETEROGENEOUS NATURE OF CLIENT BASES AND THE NEED TO INTEGRATE STRONG SUSTAINABILITY CRITERIA INTO THEIR BUSINESS, THE PRIVATE BANKER’S ROLE HAS BECOME EVEN MORE COMPLEX
– BNP Paribas
new business models and Accenture said such a foundation includes high levels of process digitisation and leveraging APIs to ensure connected banking experiences and omnichannel options.
Financial institutions are pushing full steam ahead with the transition to an agile culture, removing barriers to crossfunctional collaboration and creating semiautonomous teams that can deliver solutions quickly in alignment with enterprise strategy.
It’s not hard to see that digitalisation is a dominant trend driving development in the GCC financial service sector, with Saudi and UAE banks leading through continuous investment and innovation.
Digital transformation in the financial service sector is rapidly changing the way we bank. From an institutional perspective, digitalisation is reinventing business processes and models while creating new compelling value propositions by leveraging Big Data, AI and other innovative technologies such as the cloud.
The financial services landscape is in transition. Most banks in the GCC have recognised that platforms are the lynchpin to success in this new world and ecosystems are coalescing around customer pain points and value propositions.
Global consultancy firm BCG Group said unlike the typical fintech, incumbents face a tougher conundrum: how to compete in ecosystems without cannibalising their core business and devaluing capabilities that they have been building for decades.
To thrive in the new digital era, banks will need to rearticulate their value proposition, bearing in mind the power of simultaneously simplifying and upgrading the customer experience and creating value through data.
The new operating environment calls for banks that can identify and swiftly respond to customer demands. Banks need a proper foundation to support
“Banks that implement a well-rounded digital transformation strategy create intelligent workflows that utilise AI and data to enhance both employee and customer experiences,” said IBM.
The digital transformation in banking starts with digital channels such as mobile banking and extends across the company-wide digitalisation working models, data management methods and risk control strategies.
Globally, banking is changing rapidly and will be nearly unrecognisable in a few years to come. Banking customers are clamouring for digital banking
experiences that match the convenience and ease of use offered in other market, sectors and countries.
“Digital-only players that adopt these non-linear business models are outperforming competitors that simply employ vertically integrated models in the digital world,” said Accenture. The core solution of the AI bank of the future is a seamless, personalised, omnichannel presence reflecting the precise configuration of online and mobile banking applications.
Digital banking is swiftly changing the field of play where incumbents are facing increasing competition from neobanks or challenger banks that are billing on customer experience as their point of sale. YAP, the UAE’s first independent digital bank was launched in August 2021. The digital banking platform plans to expand into Saudi Arabia, Egypt, Morocco, Pakistan and Ghana after securing a $41 million investment last July.
State-backed Wio Bank, a neobank that is jointly owned by ADQ, Alpha Dhabi, e& Group and First Abu Dhabi Bank, opened its doors for business in September 2022. Zand Bank, another digital-exclusive bank in the UAE, is expected to open its doors for business soon after receiving banking licence from the central bank in July 2022.
Similarly, Saudi Arabia licenced its third digital bank, D360 Bank, with a capital of $440 million in February 2022 after the kingdom licenced two other neobanks, stc Bank and Saudi Digital Bank, in 2021.
BCG Group said the growth of these institutions is spurred by the need for on-demand and easier to- access
financial solutions demanded by a young and increasingly digitally savvy, often digitally native, demographic.
These financial service providers are competing with speedboats— independent, cost-effective and agile digital banking spinoffs of legacy banks such as Emirates NBD’s Liv., Dubai Islamic Bank’s rabbit, Boubyan Bank’s Nomo and National Bank of Kuwait’s Weyay.
Nomo partnered with ADCB and Al Hilal Bank in April, giving UAE customers access to UK-based Shariah-compliant multicurrency current and savings bank accounts. The unique proposition allows customers to get finance to buy properties in the UK as an investment or as a second home.
Neobanks and speedboats are unencumbered by the constraints of legacy business models and core systems. They leverage transparent product offerings to provide a wide range of easily accessible banking services in the platform approach that today’s digitally savvy customers expect.
The era when the financial services sector was dominated by colossal
global banking groups such as JPMorgan Chase or BNP Paribas is over. Banking as a Service (BaaS) is reconfiguring the banking value chain, opening the door to disintermediation and enabling new sources of growth.
By integrating non-banking businesses with regulated financial infrastructure, BaaS offerings are enabling new, specialised propositions and bringing them to market faster. While smaller banks and fintech firms initially dominated the BaaS and embedded finance market, incumbents are now beginning to wake up to its potential.
BaaS allows incumbents to monetise their banking stacks such as data, capabilities and infrastructure by seamlessly integrating financial services and products into other kinds of customer activities, typically on non-financial digital platforms.
BaaS is the only arena that is not customer-facing. BaaS solution providers make it easy for any business, from fintech companies to startups to established platforms to embed the financial services traditionally offered by a bank—such as monetary accounts, cards and loans— directly into its existing software.
The financial technology allows banks to offer more services without having to build and maintain additional infrastructure. BaaS is scalable and agile, for any financial institution, it is an opportunity to reach a greater number of customers at a lower cost—particularly suitable for entering new markets and then expanding.
Customers no longer want banking apps that do not go beyond transactional service and payment processing instead
WHETHER ECOSYSTEMS ARE AN EXPONENTIAL GROWTH DRIVER, OR AN EXISTENTIAL THREAT COMES DOWN TO THE STRATEGIC CHOICES A BANK MAKES
– BCG Group
BANKS THAT IMPLEMENT A WELLROUNDED DIGITAL TRANSFORMATION STRATEGY CREATE INTELLIGENT WORKFLOWS THAT UTILISE AI AND DATA TO ENHANCE BOTH EMPLOYEE AND CUSTOMER EXPERIENCES
they are demanding the same interactive and intuitive experiences they get from other digital services such as super apps.
Banking customers are redefining their expectations, taking their cues from other industries that offer multichannel access, product simplicity, seamless integration and ‘segment-of-one’ targeting. This is where BaaS comes in to help software platforms access banking capabilities traditionally only offered by a licensed bank.
BaaS can extend banking services outside traditional banks so that even non-authorised operators can offer financial solutions. The innovative technology is paving the way for telecom or utility companies, super apps and big technology companies to conveniently provide custom banking services within their platform.
“Nonbank participants benefit from a quick onramp to the banking market by leveraging a regulated entity’s license instead of pursuing their own charter,” said Gartner.
With the BaaS market projected to reach $11.34 billion by 2030, the future of the GCC banking system certainly looks bright. However, challenges for providers, distributors and enablers lay ahead; streamlining customer experiences and building hyper-personalised, engaging products takes time.
Historically, payments have been a core banking business and it remains a vital function. However, banks have encountered challenges to this long-held strength in recent years amid growing competition from new entrants such as fintech companies, global processors and card networks.
“Leading payments specialists have been able to win over customers through a more focused approach emphasising customer experience and innovation to serve unmet needs,” said McKinsey & Co.
Payment’s specialists such as American Express and Mastercard face lower regulatory and compliance
obligations than banks while recent entrants including Square and Stripe are not burdened by legacy technology issues.
Despite the growing competition, incumbents retain key traditional advantages in the battle for value in the digital payments space. Banks have large existing bases of customers with high levels of engagement and trust. Incumbents can combine digital payments with core banking products such as deposit accounts and lending to advance the customer proposition while offering a proven path to monetisation.
and e& Group, respectively—alongside incumbent banks.
Globally, payments remain one of the best-performing financial services products but unfortunately for banks, traditionally the main providers of payments services, this momentum is no longer extending to most of them, especially under the current operating conditions.
The emergence of new technologies is offering banks a window to be more innovative and efficient in-service delivery, but it is also opening the door
– AccentureBanks in the GCC region see payments as a holistic business, not just an enabler, and they are developing a new playbook for winning in the payments race. Going forward, industry specialists expect banks that swiftly respond to the challenge posed by specialists to have the potential to secure their relevance in the payments space.
The digital payments sector was growing rapidly even before the outbreak of the pandemic. Mastercard’s New Payments Index 2022 showed that 85% of consumers in the MENA region have used at least one emerging payment method and 64% increased their use of digital payments in 2021.
The region is witnessing a burgeoning digital payment industry as regulators are issuing regulatory frameworks to govern the licensing, set-up and operations of digital wallets—allowing the expansion of the market to include fintech and telecom companies—such as Careem Super App
to new entrants such as fintech firms, global retail giants as well as card networks and neobanks.
While digital transformation in the financial services sector is boosting growth in the payments sector, changes in the environment such as lower merchant discount rates may be necessary to fuel the wider adoption of digital payments by merchants.
The value chain in banking has relied on a vertically integrated business model until now. However, in a world where financial products are embedded and invisible within non-banking partners’ offerings, the old models are being shattered by new digital-exclusive players that are seizing the fragments and turning them into profits. Though GCC banks seem to have made significant strides on the digitalisation front, it remains to be seen whether they have moved fast and bold enough to compete in the new world.
DIGITAL-ONLY PLAYERS THAT ADOPT THESE NON-LINEAR BUSINESS MODELS ARE OUTPERFORMING COMPETITORS THAT SIMPLY EMPLOY VERTICALLY INTEGRATED MODELS IN THE DIGITAL WORLD
What currently are the leading two trends in the region’s banking technology market?
Following are the two leading trends in the region’s banking technology market –
a. Payments are one of the fastest areas of growth, change and innovation, as well as disruption in the market. Banks are increasingly realising that having a fragmented payments technology landscape is making it difficult to gain agility and be competitive and current with the pace of change. This is leading to more banks exploring payments technology and application consolidation in the form of Centralised Payment Hubs to cater to end-to-end needs and bring efficiency and scale in processing. TCS BaNCS has seen many of our customers of different sizes adopting the same in the past few years, and we are currently pursuing many opportunities for payment transformation.
One of the largest banks in UAE has implemented our Enterprise Payments hub, which enables them to offer standardised and centralised payment processing to their customers while reducing the IT management costs of maintaining multiple silo systems. It has also provided the bank with faster time to market.
b. Many banks still run on legacy core banking systems, and this has hindered
true digital adoption. Adopting digital core solutions with real time and API capabilities is a continuing trend, which is critical for banks wanting to embrace true digital capabilities and also ensure that they are able to partner with larger ecosystem players, fintechs, etc.
How is AI currently deployed in the regional banking sector and where will it move into going forward?
AI is being deployed for more and more use cases in the MEA region. Facial recognition, MRZ scanning, fraud monitoring, cheque image scanning, chatbots, AI-based marketing campaign automations and VAT registration document scanning are seeing increased adoption by banks. ChatGPT or Large Language Model related areas are also opening interesting possibilities. With AI also comes a responsibility with respect to how data is used and ensuring that it does not have undesirable side effects.
From your experience and track record in this market, what do you see as the changes and trends in technological needs/adoption in the coming years?
TCS BaNCS is a leading banking solution provider in MENA, and for the last two decades has been engaging with leading commercial banks and financial services institutions across the region. Recent trends indicate significant disruption
in the financial services industry with innovative business/revenue models, focus on superior customer experience and cloud adoption for substantial reduction of capex investments. Standalone product processing engines will gain prominence for addressing large volume requirements in the coming years as more product complexity is offered to/demanded by customers. Technology vendors have been transforming their offerings in line with these industry requirements; specifically, bank to bank, bank to customer, among others.
What do you judge to be the most significant way that technology changed the regional banking markets over the previous five years?
The advent of open APIs has made partnering and ecosystem collaboration much easier. The other trend is the adoption of smart analytics that allows financial services companies to mine the wealth of consumer data to understand and service their customers better. This has been a significant development for leading banks in the Middle East and Africa, whereby they are empowered to offer enhanced services to their customers in a secure, reliable, and affordable manner while also sustaining their competitive advantage.
Deepak
Solutions, MENA identifies the current focus of banking technology in our region, balanced with his thoughts about what have been most impactful developments in recent yearsDeepak Kunhikannan Head, Sales, TCS Financial Solutions, MENA
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Egypt is witnessing a burgeoning digital payment industry after the central bank approved regulations to govern the licensing, setting up and operations of instant real-time payments
Globally, digital payments are a booming industry, having attracted more investment than any other financial services sector and delivered the highest returns and growth in the sector over the past years. Egypt and the entire Middle East region have been no exception.
The North African country is witnessing a burgeoning digital payment
industry after the central bank approved regulations to govern the licensing, setting up and operations of instant realtime payments.
Over the last two years, authorities have introduced a series of new legislation and regulatory changes designed to unleash fintech investments and change the way the country’s largely unbanked citizens do business.
The regulations are expected to expand the payment services market to include fintech and technology companies alongside incumbent banks.
Favourable demographics and economic growth, technological innovation and advances in payments infrastructure are working together to shape the future of payments in Egypt. While traditional payment methods still have traction in the Arab World’s most populous country, digital products such as instant real-time payment, digital wallets, buy now pay later (BNPL) and account-to-account payments are gaining traction.
The surge in digital payments volumes in Egypt is also being driven by the growth in e-commerce as the prolonged pandemic has pushed more shoppers online and changed customer
preferences and demands among the young tech-savvy customer base.
“Leading e-commerce and technology companies have set a high bar for the financial services industry to create better experiences and simple, seamless integrations that can make traditional banking, digital payments and other related activities easier to accomplish,” said Deloitte.
The payments sector is benefiting from the ongoing shift towards subscription-based billing—a boon for the Middle East’s payments-as-a-service (PaaS) and software-as-a-service (SaaS) solution 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.
The changing customer behaviours and reimagined customer experiences— marked by an increasing desire for frictionless, more seamless and intuitive value-added banking experiences—are driving incumbents to develop open, collaborative financial ecosystems.
Egyptian banks are leading or participating in several accelerators, incubators and training programs to advance their access to instant payment technologies to enhance service delivery. For fintech and startups, such partnerships provide easy access to resources, data, funding, space and networking opportunities to test and showcase their prototypes.
“Egypt is a fertile ground for all that is innovative and digital. It is wonderful to see consumers in Egypt adopting different payment options such as payment apps and BNPL and discovering more of the digital economy’s benefits,” said Adam Jones, the Country General Manager of MENA Central at Mastercard.
For banks to maintain a competitive edge in the next normal, McKinsey said, “Success will depend on thoughtfully assessing capabilities, determining the
role of payments in market strategies and appropriately aligning payments operations to achieve the required performance improvements.”
Egypt’s three biggest state-owned banks, Banque Misr, the National Bank of Egypt and Banque du Caire, partnered with Egyptian Banks Company and eFinance last March to set up an $85 million financial technology fund to accelerate innovation in the digital payments sector.
The global payments giant Mastercard invested in Nclude in October 2022 to accelerate the growth of Egypt’s fintech ecosystem and support its digital transformation journey. The fintechfocused investment fund has since provided funding to several fintech firms in the country including digital payments solution provider PayMob, BNPL firm Lucky and super app Khazna.
The Egyptian startup ecosystem grew by 176% year-on-year to hit record-high venture capital funding of $1.2 billion in 2021, according to Dubai-based research firm MAGNiTT. Fintech-led deal flow activity in Egypt accounted for 17% of all deals closed in the country.
Payments firms, which in Egypt work in association with banks, stand to benefit greatly from the country’s new regulations. Mastercard is working with several incumbent banks in Egypt including Al Ahli Bank of Kuwait—Egypt
and Banque Misr to advance instant realtime payment solutions to enable the growth of the country’s digital economy.
Mastercard’s New Payments Index 2022 revealed that 88% of people in Egypt have used at least one emerging payment method in the last year, including 35% who used tappable smartphone mobile wallets, 27% who used a digital money transfer app and 24% who used QR codes.
Technological innovation in the financial services sector is the cornerstone of fintech development and will continue to drive disruptive business models in the payments space globally. “Driven by changes in digital technology, consumer demand and competitive forces, the way people make payments is evolving faster than any other area of financial services,” said EY.
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.
Mastercard said that the adoption of a broader range of digital payment methods is accelerating in Egypt and the technology fuelling the future of payments is already here. Consumers
LEADING E-COMMERCE AND TECHNOLOGY COMPANIES HAVE SET A HIGH BAR FOR THE FINANCIAL SERVICES INDUSTRY TO CREATE BETTER EXPERIENCES AND SIMPLE, SEAMLESS INTEGRATIONS THAT CAN MAKE TRADITIONAL BANKING, DIGITAL PAYMENTS, AND OTHER RELATED ACTIVITIES EASIER TO ACCOMPLISH
– Deloitte
in Egypt are increasingly and actively using instant real-time payment solutions in everyday life demonstrating their increasing familiarity with digital cards and open banking.
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.
Egypt is becoming a fast-growing fintech hub bolstered by a 230% growth in cashless payments and with around 39 banks and a population of over one hundred million, the North African country presents an opportunity for fast-tracking the implementation of open application programming interfaces (APIs).
UAE-based Fintech Galaxy acquired Underlie, an Egyptian open banking platform that offers APIs to banks and businesses, to expand in open banking business across the region while developing and launching new digital payment solutions.
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 Middle East 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 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 do not follow Bahrain in requiring the opening up of APIs—which
facilitate data sharing, or in mandating security standards.
With open banking coming into effect in the first quarter of 2022 in Saudi Arabia, Strategy& said that legacy banks may lose their dominancy in the payment services sector.
Outside the Middle East, several countries including India, Japan, Singapore and South Korea are implementing a market-driven approach. These countries do not currently have formal or compulsory open banking
Middle East retail banks that are looking at scaling up their digital transformation as it provides free-to-use source code that gives developers a head start in programming their applications.
The collaboration between paymentsas-a-service (PaaS) solution providers and banks is also crucial for the financial sector as it allows players in the industry to calibrate their business models while enabling them to bundle some of the solutions available on the market to meet customers’ demands.
Adam Jones, Country General Manager of MENA Central, Mastercardregimes, but their policymakers are introducing wide-ranging measures to promote and accelerate data-sharing frameworks in the financial service.
The fact that payments represent the most frequent touchpoints between banks and their clients makes investment in the sector more important than ever. SaaS allows traditional 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 servers, freeing up time and resources for customers and operations.
McKinsey said that serverless architecture fosters flexible scaling that avoids idling and loss, improving development efficiency. The adoption of open-source software is a godsend for
PaaS players operate cutting-edge cloud-based platforms to provide specialised services, such as card issuing, payment clearing, crossborder payments, disbursements and e-commerce gateways.
The innovative technologies offer resiliency and cost-effectiveness and accelerate customer onboarding, allowing organisations to focus their operating and business models while meeting customers’ demands. Consumers are increasingly relying on digital finance options for their everyday financial tasks, driven by the benefits of solutions such as open banking which ranges from speed to convenience to transparency. Egypt’s payments space is going through a transformation as the changes in the market and customer demands are creating new opportunities for incumbents and disruptors alike.
EGYPT IS A FERTILE GROUND FOR ALL THAT IS INNOVATIVE AND DIGITAL. IT’S WONDERFUL TO SEE CONSUMERS IN EGYPT ADOPTING DIFFERENT PAYMENT OPTIONS SUCH AS PAYMENT APPS AND BUY NOW PAY LATER AND DISCOVERING MORE OF THE DIGITAL ECONOMY’S BENEFITS
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Shariah-compliant assets in the UAE increased significantly, reaching $169.1 billion (Dhs 607.8 billion) at the end of October 2022. We expect to see more syndications, particularly in real estate and energy.
If we look at the UAE’s operating environment, we realise that it has remained incredibly robust amidst the global economic challenges. The return of trade and tourism, increasing retail spend in addition to growth and rising profitability in banking and finance, clearly reflect the growing confidence in the domestic buoyant real estate sector. On the back of improved economic outlook, DIB has posted its strongestever performance, a reflection of multiple factors, such as the UAE’s economic environment, higher trading activities, and increased foreign inflows. This favorable backdrop is attributed to the market’s continued confidence in the vision of pro-investment governments in the UAE and the broader region, and Dubai’s plan to double the size of its economy in the next decade.
With that in mind, and thanks to the strength of DIB’s strategy and the global expansion of Shariah finance, the Bank has achieved its strongest year in its history, with robust growth in profitability, reporting a total income of AED 14 billion in 2022. That is a 20% YoY
growth, which delivered a balance sheet that reached AED 288 billion by the close of the year – a 5-year CAGR of 7%. The bank’s growth was also supported by prudent cost management and sustained lower impairments.
Given the rate environment, DIB made a deliberate tactical move focused on quality and structural sourcing rather than growth only. This led us to support large corporate and public sector entities in adjusting and aligning their balance sheet in the new medium-term environment, a winning combination for customers, the bank and the economy. Furthermore, DIB’s strategic focus on digital innovation and advancing business growth has enabled the bank to further enhance customer experience and expand its market reach, contributing to its overall financial success.
Based on your results, how do you project near-term growth for the regional Islamic banking market?
When you look at DIB’s asset growth – and we must remember that DIB is the largest Islamic Bank in the UAE by assets – you see a clear picture of the robust and sustained expansion of Islamic banking in the UAE and wider GCC market. Indeed,
Last year saw DIB lead a series of major syndications, including TECOM, the Abu Dhabi Oil Refining Company, ICD-Brookfield Management, Nakheel Group and Ittihad International Investments. Thanks to the strength of our existing relationships and in-depth understanding of global sovereigns, supranationals, large corporates and financial institutions, DIB is able to maintain its position as the best placed
underlines the burgeoning strengths and dynamic future for Islamic banking and finance, showing how this is not only reflected in their own growth performance, but in the way that the world is now turning to more ethical and sustainable ideasDr. Adnan Chilwan, Group Chief Executive Officer at Dubai Islamic Bank
bank to present large transactions to international banks and investors.
In recognition of the scale of opportunity within the regional Islamic banking market, we partnered with the leading UAE capital markets financial institution, Al Ramz, in 2022 to leverage capital markets services and expand our financial offerings to our customers. The partnership allows DIB to provide brokerage and related services to its clients through Al Ramz Capital, where the bank will also offer its banking services to its customers as part of the arrangement. This partnership will also enable customers to access a wide range of securities solutions in local, regional and international markets.
Moreover, the increasing demand for ethical and transparent financing options will likely drive further growth in the regional Islamic banking market. As businesses and individuals continue to prioritise sustainable finance and ESG principles, the attractiveness of Islamic banking as an alternative to conventional banking will only grow stronger.
The principles of Islamic finance are rooted in fairness, transparency and risk-sharing. Thus, we are seeing that an increasing number of businesses and individuals are looking to work with banks that have these ethical business practices at their core. And, of course, the wider context of a shift towards sustainable finance and environment, social, and governance (ESG) principles is catalysing a move towards Islamic finance as a fair and transparent alternative.
The reality is that post-2008, the world’s financial markets took a significant reputational impact – and now we see the collapse of a major bank in the USA and the subsequent takeover of Credit Suisse, demonstrating that the traditional international financial markets remain uncertain. A vast global interconnected network of financial institutions is only as strong as its weakest link, which is
why a values-led ecosystem of Islamic finance is always going to be structurally more resilient.
Do you believe that Shariah finance has an inherent lead over conventional banking when focusing on ESG programs?
The growing awareness of ESG in global finance has coincided with an increase in demand for green or socially responsible projects. Inevitably, Islamic finance has an inherent lead on conventional
Sustainable Development Goals (SDGs). According to an OECD report, some key contributions of Islamic finance to the SDGs include:
1. Inclusive growth: Islamic finance aims to reduce income inequality and promote access to finance for all, in line with SDG 1 (No Poverty), SDG 8 (Decent Work and Economic Growth), and SDG 10 (Reduced Inequalities).
banking when it comes to ESG principles and activities. That is why, throughout economic crises and economic cycles, a growing number of governments, businesses and individuals now view it as a more genuine and fair way of banking. For SMEs, in particular, Islamic banking provides safe and reliable access to finance, in addition to a variety of marketleading products and services.
Islamic finance also has an increasingly important role in supporting the Global
2. Infrastructure investment: By promoting risk-sharing and assetbased financing, Islamic finance supports infrastructure investments, contributing to SDG 9 (Industry, Innovation and Infrastructure).
3. Environmental and social impact: Many Islamic finance principles align with the ESG criteria, thereby contributing to SDG 11 (Sustainable Cities and Communities), SDG 12 (Responsible Consumption and Production), and SDG 13 (Climate Action).
GIVEN THE RATE ENVIRONMENT, DIB MADE A DELIBERATE TACTICAL MOVE FOCUSED ON QUALITY AND STRUCTURAL SOURCING RATHER THAN GROWTH ONLY
Islamic finance is also more resilient and stable – it is equity-based or assetbacked and underpinned by risk-sharing. It also emphasises financial inclusion, responsibility and social welfare as well as fair distribution of wealth. As more organisations and investors prioritise ESG criteria in their decision-making, the appeal of Shariah-compliant financing options is likely to increase.
As businesses and individuals continue to prioritise sustainable finance and ESG principles, the attractiveness of Islamic banking as an alternative to conventional banking will only grow stronger, driving further growth in the sector.
In addition to our strategic focus on driving business growth and service innovation, DIB aims to establish an ideal sustainable financial institution, in line with UAE Government announcement of 2023 the Year of Sustainability. The banking sector has a critical role to play in this and needs to work together towards an overall vision that contributes to UAE’s commitment ahead. For DIB, driving digital transformation is one of the integral aspects of its sustainability journey, both here in the UAE and abroad. The digital revolution has created new opportunities for us - which is why in several world markets, from Turkey to the Far East and multiple countries in between, DIB is transforming the Islamic financial services landscape. In fact, DIB has specifically worked to extend its operations and enter into new partnerships in other markets over the past year.
In terms of environmental, social, and governance (ESG) principles, the reality is that the underlying purpose of ESG has always existed in Islamic finance because of its Shariah values. Notwithstanding that, DIB has embraced the principles of ESG as an ethical imperative and as a roadmap to even greater financial inclusion and corporate responsibility. That is why in 2022, the Bank announced
the publication of its Sustainable Finance Framework, which was created to facilitate the financing of green and social initiatives and projects. In doing so, DIB became the first Islamic Bank in the UAE to publish such a Framework.
Under the Framework, DIB is financing projects with environmental benefits in eligible project categories such as renewable energy, energy efficiency, clean transportation, green buildings, pollution prevention and control, and sustainable water and wastewater management. We are also supporting social initiatives that promote employment generation, affordable housing and access to essential services. And the Bank has already launched a number of innovative sustainable finance offerings, such as a green auto finance offering specifically for electric and hybrid vehicles and its bespoke housing financing solutions to provide affordable housing in the UAE.
At DIB, we strongly believe that the banks have a big role to play in accelerating the transformation towards a sustainable low-carbon future in the UAE, and we are doing our part by supporting and launching more green initiatives, be it paperless drives, green bonds, efficient technologies, or green auto finance.
In the fourth quarter of 2022, DIB successfully issued its inaugural USD 750 million Sustainable Sukuk, in line with the bank’s Sustainable Finance Framework and corporate sustainability strategy. The Sukuk was created to facilitate financing of green and social initiatives and projects. The deal marked the first-ever Sustainable Sukuk from a UAE Financial Institution and was 2.3 times oversubscribed, demonstrating DIB’s strong commitment to sustainable finance and the confidence investors place in the bank.
The context says yes – there will be the continued growth of M&A activity in the regional Islamic finance sector over the coming years in the GCC region. The wider environment tells a clear story: the region’s capital markets are maturing at a historic pace, with multiple IPOs taking place, not only in the large economies of Saudi Arabia and the UAE but also in Oman and other territories. Investors are looking for opportunities in what many consider to be a comparatively more stable region – and businesses are looking to secure growth through M&As.
The regulatory backdrop is also maturing, giving global companies even more confidence in the region.
Indeed, the regulatory context is one of the most important factors. In the light of significant geopolitical uncertainty and higher global inflation, the GCC governments have worked hard to maintain robust economic fundamentals, fiscal surpluses, and probusiness economic incentives. When you consider that many parts of the developed economies are struggling with historic debt-to-GDP ratios and are ramping up corporation taxes, the GCC looks increasingly competitive.
Despite the challenges that the banking sector faced during and post the pandemic, the Islamic Finance segment remained resilient, and has been performing strongly in the past few years. According to the S&P Global Islamic Finance Outlook Report 2022, a 10%-12% growth rate in the Islamic finance industry is achievable in the next two years, given the expansion of Islamic banking assets in GCC, Malaysia and Turkey and Sukuk issuances exceeding maturities.
Regulatory frameworks on Islamic finance have now been more than ever supportive across major jurisdictions and regions globally, including new markets such as Europe and the Far East, and Central Asia. The development of these new regulations has further supported the growth of the industry worldwide.
The growth of Islamic finance will inevitably take place in tandem with a growing appetite for ethical, fair, and transparent financial services. We are seeing this happen already across Islamic and non-Islamic communities around the world. Ultimately, Islamic banking encourages practices that promote the betterment of society – and all societies want to achieve stability and fairness. That is why many of the developed
economies with comprehensive financial systems are seeing rapid growth of Shariah finance.
The UK, which is one of the largest markets in the world for fund management, saw assets under management of global Islamic funds grow by an average of nearly 13% between 2017 and 2021. And so, while the Islamic finance markets remain concentrated in countries in the GCC, Indonesia and Malaysia, the UK actually ranked 5th in the 2022 Global Islamic fintech index, demonstrating not only that western societies are embracing Shariah finance but are also accelerating digital Islamic solutions. So, if you look at the total global picture in the long term, the signs are that Islamic financial alternatives will continue to take an exponentially greater share of global financial markets.
As we look to 2023 and beyond, we will continue our digital journey offering products and services to a diverse customer base across generations and demographics – and through analytics and machine learning, we have the capacity to create personalised solutions for every customers’ lifestyles and aspirations. Technology is also fundamental to our work in fairness and transparency. Being the world’s first Islamic Bank and the largest in the UAE, DIB has established a culture of constantly leveraging transparency and speed provided by technology to foster a feeling of trust in the system and the organisation as a whole. This ethos will continue to shape our digital decisionmaking – and matters of privacy and ethics are especially important when adopting AI-based technologies.
Sustainable finance and green financing will also remain core priorities. Of course, the Islamic banking sector is yet to unlock its full potential in its contribution to sustainable finance –and green Sukuk is an area where opportunities are high, given the energy transition in many core Islamic finance
countries and the ambitions of some in the electric vehicle space. However, the additional complexity of green sukuk and the slow implementation of the energy transition agenda suggest that market dynamics will not change in the next oneto-two years.
At the macro level, our broad future vision is built around a commitment to aligning our operations with that of the UAE by embarking on a new journey with a renewed purpose and revamped positioning – #ReadyForTheNew. This new approach sets out a strategy for how we engage with both internal and external stakeholders. #ReadyForTheNew means placing human capital and the interests of our customers at the center of every decision we make as a business – a kind of banking that proactively innovates to meet the real-time needs of our colleagues and those we serve in the community.
Furthermore, as part of our strategy for 2022-2026, DIB aims to align with the ambitions and the expansionary agenda of the UAE. We have embarked on a new five-year strategy that focuses on two main objectives:
1. Strengthen the Group: We aim to reinforce, energise and adapt our operations by strengthening our capital base and enhancing operational efficiencies while safeguarding the business against market volatilities through robust compliance, risk management and controls.
2. Gr ow the Group: Our focus is to diversify, innovate and expand our offerings and reach. We plan to deliver balance sheet growth by deepening our penetration of the existing customer base and targeting new customer segments. Additionally, we will be enhancing and expanding our global operations to boost our presence in the international market. By implementing this strategy, DIB is well-positioned to continue its journey of growth and innovation while remaining true to its core values and commitment to sustainability.
The public and private sectors in the GCC region have been developing programmes to catalyse the growth of SMEs, including startups
The contribution of small businesses to national economies is widely recognised in the GCC region, making these businesses important drivers of growth. The Arab world is home to millions of small and medium-sized enterprises (SMEs), including startups, which see the region as a strong place to start and grow a business.
The number of SMEs in the region keeps growing fuelled by rapid growth in the UAE and Saudi Arabia. Whether in Dubai, Riyadh or Doha, the region has never been short on talented entrepreneurs, but the ecosystem is now more vibrant.
“SMEs are a cornerstone of Arab economies, accounting for more than 90% of all businesses and providing a major source of new job creation,” said the International Monetary Fund (IMF).
The GCC scaleups segment – SMEs with proven business models that are undergoing a rapid growth phase –contribute between 15 to 30% of the gross domestic product (GDP). The success of the region’s entrepreneurs is being fuelled by a range of dedicated support services, regulatory changes and a robust financial services sector.
Events of the past three years – a prolonged pandemic, stickier-than-
expected inflation and soaring interest rates – have reinforced the Gulf region’s position as a global hub of SMEs and startups. The region’s policies, free economic zones, tax laws and government support for technology and digitisation have given a strong base for developing global startups.
According to McKinsey & Co., “With the right support, small and medium-sized enterprises could significantly boost economic growth. Governments can help capture this opportunity.”
However, the funding landscape is complex, particularly for small businesses. SMEs struggle to secure the financing required to enable their growth globally, despite the vital role they play in national economies.
Lending to SMEs is often not on top of the agenda for most banks given the imbalance between cost and complications of servicing SME businesses in comparison to the potential returns to banks.
Despite warnings of global economic uncertainty and pressures emanating from tighter monetary policy, GCC economies have maintained momentum, with an average growth of 3.1% forecasted for the oil-rich region in 2023, according to the IMF.
The public and private sectors in the GCC region have been developing programs to catalyse the growth of SMEs, including startups.
“An empowered SME sector is a growth engine for the economic development of a country,” Mastercard said in a report while noting that a multi-stakeholder approach to strengthening small businesses is the most effective way to achieve sustainable growth.
As small businesses in the Gulf region remain positive about their prospects, growth is forecasted to be in the double digits in 2023, driven by state support for entrepreneurs and investors who are flush with cash from last year’s oil boom.
With the UAE set to introduce a corporate tax on business profits starting from June 1, 2023, the federal government said small businesses with revenues of $816,880 (AED 3 million) will benefit from a new tax relief programme. The ministerial decision on Small Business Relief, which was issued in April, seeks to support startups and other micro businesses by reducing their tax burden and compliance costs.
SMEs represent more than 94% of companies operating in the UAE and provide jobs to more than 86% of the private sector’s workforce. In Dubai alone, SMEs constitute 95% of all businesses, create 42% of employment opportunities and contribute 40% to the city’s GDP.
Last year, the Abu Dhabi SME Hub – an interactive knowledge platform that was set up in the city as a public-private partnership initiative –expanded its offerings last December to empower Micro, Small & Medium Enterprises - MSMEs and startups to drive growth and contribute positively to sustainable development.
557,000 SMEs are operating in the UAE as of December 31, 2022, in line with the Emirates’ ambitious efforts to drive this number to one million by 2030.
Saudi Arabia’s SME sector has proven resilience over the years, demolishing barriers to entry in traditional sectors and opening new avenues of growth. The Small and Medium Enterprises General Authority (Monsha‘at) is a significant player in the industrial SME ecosystem.
“Monsha’at strives to develop policies and standards for funding SMEs, including initiatives to further technology knowledge transfer, performance, productivity and supply chains,” said KPMG.
The authority said the number of registered SMEs in Saudi Arabia grew by nearly 10% to 978,445 in the third quarter of 2022. Small businesses in the Arab world’s largest economy are a force to reckon with as the kingdom continues to diversify its economy in line with the objectives of Vision 2030.
Most countries in the GCC and the entire MENA region have dedicated SME strategies, led by the UAE, Algeria, Jordan, Qatar, Saudi Arabia and Tunisia which are incorporating small businesses in national development strategies.
SMEs are an integral part of the region’s economic diversification as governments seek to wean their economies off reliance on oil revenues while accelerating sustainable and inclusive growth. The sector represents a significant part of the GCC’s economy and is one of the strongest drivers of economic development, innovation and employment.
SMEs in the GCC region typically fall into one of these six categories: earlystage innovative startups, established successful startups, growing mediumsize companies, stagnant or struggling medium-size companies, locally focused small businesses and informal micro businesses.
Funding commitment to small businesses is key in realising the sector’s
SMES ARE A CORNERSTONE OF ARAB ECONOMIES, ACCOUNTING FOR MORE THAN 90% OF ALL BUSINESSES AND PROVIDING A MAJOR SOURCE OF NEW JOB CREATION
overall contribution to sustainable growth across the GCC and development finance institutions such as development funds, banks, lending and insurance institutions are extending support to SMEs in the region.
“While it is important to launch initiatives to drive funding to the SME sector, it is equally crucial to understand their unique requirements as SMEs seek different types of funding options across different stages of their business life cycle,” said Deloitte.
The UAE’s state-run Emirates Development Bank disbursed $490 million (AED 1.8 billion) in loans to SMEs in 2022, up 387% compared to the previous year.
The funding comprised $327 million (AED 1.2 billion) in direct financing and $166 million (AED 611 million) in indirect financing through the development lender’s credit guarantee scheme with partner commercial banks including Emirates Islamic, RAKBank and National Bank of Fujairah.
US consultancy firm Publicis Sapient said that there is a significant opportunity to increase SMEs’ access to financing in the GCC and now is the time for banks to act. “In a time of global economic upheaval, serving the complex needs of SMEs sends an encouraging message: SMEs should focus on running their businesses and banking services should be seamless for them,” said Publicis Sapient.
Saudi Arabia’s Small and Medium Enterprises Bank (SME Bank), a development bank under the National Development Fund, plans to allocate $2.8 billion (SAR 10.5 billion) to finance various programs for the SME sector in the next three years. Monsha‘at said $760 million (SAR 2.85 billion) was disbursed in indirect lending in the third quarter of 2022, benefiting 2,500 establishments.
SMEs are often the hardest hit when crises emerge and the recent global banking crisis, soaring inflation and soaring interest rates have been no exception. However, the GCC venture debt market has witnessed a flurry
of activity as deals dry up in other parts of the world signalling investors’ cautionary stance.
The region has emerged as the Wall Street of venture capital investments as financial hubs such as the Dubai International Financial Centre and King Abdullah Financial District are attracting a growing number of global venture capital firms including AUM Ventures, YCombinator and Sequoia Capital.
Globally, entrepreneurs are gravitating toward major startup hubs such as
Last year, Abu Dhabi-headquartered Anghami become the first Arab technology company to list on Nasdaq in February 2022 and a few months later ride-sharing firm Swvl made debuted in New York as well in April of the same year. Sheikh Mohammed bin Rashid Al Maktoum, VicePresident and Prime Minister of the UAE and Ruler of Dubai said Swvl was a symbol of the Middle East’s startup spirit.
Similarly, Saudi buy-now-pay-later (BNPL) firm Tamara secured a $150 million debt facility from Goldman
– McKinsey & Co
Silicon Valley, London and Bengaluru to launch their enterprises, seeking an innovative environment, access to financing and business support – Dubai, Abu Dhabi and Riyadh are also offering that enabling ecosystem.
The increased adoption of e-commerce and fintech solutions over the years has accelerated the growth of the startup ecosystems as investors are attracted by success stories from homegrown companies such as Careem, Souq.com, Swvl and music streaming platform Anghami.
Amazon.ae (formerly Souq.com) was acquired by global e-commerce giant Amazon in 2017 for $580 million and to add to the momentum, Uber Technologies bought Dubai-based Careem for $3.1 billion in 2019. Both deals were widely seen as milestones in the region’s technology scene, and it gave a boost to other entrepreneurs.
Sachs Group in March 2023, defying a funding slowdown in the global venture capital sector.
According to KPMG, “Fintech will likely remain a strong area of investment in many jurisdictions around the world, in addition to supply chain and logistics, cybersecurity and alternative energy.” The GCC startup ecosystem has grown exponentially over the years, together with a growing tech-savvy youthful demographic and state-backed initiatives, the region is witnessing a surge in entrepreneurs coupled with innovation across all sectors.
Recognising the fact that SMEs are key drivers of sustainable economic growth, GCC governments have moved quickly to implement support mechanisms, including lowering or suspending fees for license renewals, reforming employment regulations to enable greater flexibility and implementing national programmes such as the UAE’s Operation 300bn and the ‘Made in Saudi’ initiative.
WITH THE RIGHT SUPPORT, SMALL AND MEDIUM-SIZED ENTERPRISES COULD SIGNIFICANTLY BOOST ECONOMIC GROWTH. GOVERNMENTS CAN HELP CAPTURE THIS OPPORTUNITY
George Hojeige Group CEO, Virtugroup describes the current financing environment for SMEs in the region, highlighting changes in the banking sector aimed to help small businesses but pointing out how they must be properly prepared when approaching lenders for funding
What is your assessment of the banking and financial services provided to SMEs in the GCC at this time?
The advent of digital and neobanks in the UAE has definitely made a marked difference in improving SMEs’ access to corporate banking. In recent years, we have seen notable neobanks emerge in the country with a shared goal of easing the way for new entrepreneurs and start-ups to open corporate bank accounts and access a host of financial services. We now have YAP, the country’s first independent digital banking platform, which is also set to launch in the Kingdom of Saudi Arabia, as well as Wio Bank, a bank built for businesses and the region’s first platform bank.
Traditional banks have also stepped up and begun offering digital banking services. One of the first ones to identify the gap in the market was Mashreq, which established Mashreq NeoBiz to provide a digital business banking platform for entrepreneurs, startups and small businesses.
These neobanks and digital banks have made it easier, faster and more costeffective for start-up founders and small business owners to open and maintain a bank account. This trend is not just evident in the UAE, but across the region as well, particularly in Saudi Arabia, which has been actively building and nurturing its own start-up ecosystem in the past couple of years.
However, despite these advancements, the banking industry as a whole still has a long way to go. Onboarding new clients and maintaining accounts have vastly improved, but SMEs require a complete suite of banking services that will support them in all aspects of their business.
Access to financing is one critical aspect, and although the UAE and KSA are leading the way in financing start-ups in the region, their banking institutions need to catch up and play bigger roles in supporting businesses. Aside from financing, the banking sector can initiate support services that are specially designed for start-ups and SMEs.
As I have pointed out in my answer to the previous question, SMEs still have very limited options for financing from traditional banks. Start-ups and SMEs are generally viewed as high-risk, which makes it more challenging for them to secure loans or credit facilities from traditional banks.
The silver lining is that the region has been making significant strides in venture investment over the last few years. The Middle East and North Africa region has reportedly raised USD 3.94 billion last year, with the UAE ranking first with USD 1.85 billion across 250 deals. Saudi Arabia took second place with USD 907 million across 153 deals, while Egypt landed on the third spot after securing USD 736 million across 180 deals.
These astounding numbers, however, indicate that the key source of financing for start-ups and SMEs in the region remains to be venture capital, and other key funding sources include private equity and self-financing.
As an investor myself, one thing I consider crucial in start-ups is how they handle due diligence. Start-ups that invest the time
and resources to prepare proper and solid documentation to show to banks and potential investors have higher chances of securing funding.
Your due diligence should include a detailed business plan of your company, development appraisals or valuations, sales forecasts and realistic projections of your cash flow and asset growth.
time can help effectively manage and decrease risk, while improving support for SMEs and enhancing their access to funding.
Installing stringent entry requirements at the start is not the solution to risk management, as these only pose more barriers to SMEs seeking to get funding. Risk is part and parcel of doing business
For those aiming to secure a loan, it will also be best to devise a structured repayment plan to demonstrate your company’s ability to pay off the loan within a timeframe that is amenable to the bank.
Another area that start-ups should focus on is their cash flow. SMEs should aim to keep minimum balances and maintain a healthy and stable cash flow to give banks and financial institutions confidence in their liquidity.
Start-ups and SMEs should also place high value on building an excellent management team and illustrate their corporate strategy and direction, risk management plans, and industry experience and qualifications. Showing that your business has a capable management team also gives financial institutions confidence in your company’s ability to thrive, generate revenues, maintain liquidity and overall establish a robust business profile.
How do you risk manage your SME lending decisions?
Implementing a progressive scheme where banks increase the financing options available to businesses as their relationship and trust develop over
– and banks should be prepared to face a certain or minimal element of risk, and not zero risk.
What are the main requests or issues raised by SMEs in your relationships with them?
We have been in the industry for more than 14 years now, and to date, we have enabled more than 70,000 entrepreneurs to set up their businesses in the UAE. The major concerns that most of our clients face when it comes to business banking are the difficulties in opening bank accounts, the stringent and complicated blanket KYC and compliance requirements and occasional bank account closures that can potentially cripple their operations.
One of the solutions we have come up with to help our clients have a better banking experience and successfully open bank accounts for their businesses is to build partnerships with local and trusted banks. These relationships that we have nurtured over the years give our partner banks a certain level of trust and confidence in the clients that we connect with them, thus raising our clients’ success rates in opening bank accounts and accessing banking facilities.
HOWEVER, DESPITE THESE ADVANCEMENTS, THE BANKING INDUSTRY AS A WHOLE STILL HAS A LONG WAY TO GO
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Sriranga Sampathkumar VP and General Manager – Middle East and Africa, Infosys catches up with Tapas Mondal SVP and Head of Architecture at RAKBANK, to discuss the evolving trends in banking, RAKBANK’s digital transformation journey and their partnership with Infosys Finacle in this insightful interview
Sriranga: Hello Tapas! Let’s start with introductions about your bank and your role at the bank. Tapas: RAKBANK is one of the most dynamic financial institutions in UAE, founded in 1976. The bank caters to various customer segments, ranging from retail, business banking and corporate. Business banking is one of our most successful enterprise areas, in which we deliver a comprehensive set of products. We also cater to conventional and Islamic banking. I head the architecture department at RAKBANK.
Sriranga: Thanks for that – change is the only constant. While clichéd, this can’t be truer in the banking industry today than ever before. What are your observations about the evolving trends in banking today?
Tapas: Banking is undergoing significant changes at a pace never seen before. It is driven by rapid advancement in technology, changing customer expectations and continuously evolving
regulatory landscape. Competition is emerging from all directions with fintech offering innovative financial propositions to challenge traditional banking models. One would have never expected Apple, Facebook or Google to play such a dominant role in finance. However, upon reflection we can see that this is happening due to their deep involvement in consumer’s day-to-day life, where they have access to a real and relevant data about consumers, which they churn to improve services, provide personalised recommendations and targeted advertising. To top this off, all these companies have excellent user experience in their DNA. To me this combination of Data and user experience (UX) is extremely powerful as it allows them to influence customer behavior.
When we collaborate and compete with such players in the market, we need to better understand how we can further strengthen our customer journeys, data & analytics capability and ultimately attain actionable insights. These actionable insights allow better customer engagement, timely action, cross-sell and up-sell opportunities. Hence, building personalised customer engagement strategies, backed by data and customer events, is essential to stay competitive and relevant in today’s market.
Lastly, generative AI is poised to be a major game changer for all industries including banking and it would be appropriate to accept that most of the existing processes can be enhanced. Simultaneously, it opens doors for a technology leap – virtual assistance, financial planning/Robo advisor, fraud investigation to name a few. There’s enormous opportunity for us to capitalise on these trends.
Sriranga: What are the implications for banks like yours? How is RAKBANK evolving with these trends?
Tapas: Our bank’s vision is to be a digital bank with a human touch, to be with our customers in key moments of truth. We believe that customer obsession is the most important aspect. In this approach,
we need to understand that it’s not a finite game with fixed rules. We are in for an infinite game where we need to keep evolving to meet our understanding of customers’ needs, with an efficient feedback loop to improve our products & services by leveraging latest technology and data. This is in line with our objectives to become the most personalised bank in UAE, with brilliant customer experience. Sriranga: That’s great. Now, coming to RAKBANK’s digital transformation journey. Can you elaborate on RAKBANK’s vision for your digital transformation?
to deliver value and cutting-edge banking innovations to our customers; leveraging technology to simplify our processes and deliver brilliant customer experience. Finally, it should lead us towards achieving a sustainable competitive advantage.
We aim to be digital outside-in with our transformation. This means that we start with the customer and work our way back, using technology to create a seamless and enjoyable experience for them. To achieve this, we are focusing on enhancing UX across all the customer touchpoints, integrating our systems and processes to provide a unified experience. In addition, we are leveraging cloud capabilities for faster innovation. Finally, we are building data and analytics capabilities to provide deeper insights into our customers’ needs and behaviors. By using data-driven insight, we are able to better understand our customers and create personalised experience that meets their unique needs.
Sriranga: We have a long-standing interaction between RAKBANK and Infosys Finacle. Can you elaborate on your experience of working together and expectations going forward?
RAKBANK is currently undergoing a significant digital transformation, and this is an ongoing process that we are committed to.
If you look at digital transformation, it is a combination of various things, not merely about innovative technology adoption. Transformation is about changing the way we think – a mindset that challenges the status quo. It’s about how we change things
Tapas: It is a strong partnership, and we utilise quite a bit of your technology in our digital transformation. Finacle is deployed as our core banking solution. We are leveraging Finacle solution in our channels, and our digital onboarding journeys are built on top of Finacle’s digital engagement hub. It is a close collaboration between internal and Finacle teams to deliver an end-to-end solution.
Sriranga: Thank you Tapas. This was a great conversation and it’s always been a pleasure working with you. We look forward to inspiring the next for RAKBANK.
OUR BANK’S VISION IS TO BE A DIGITAL BANK WITH A HUMAN TOUCH, TO BE WITH OUR CUSTOMERS IN KEY MOMENTS OF TRUTH
BY USING DATA-DRIVEN INSIGHT, WE ARE ABLE TO BETTER UNDERSTAND OUR CUSTOMERS AND CREATE PERSONALISED EXPERIENCE THAT MEETS THEIR UNIQUE NEEDS
The global banking system is still recovering from the biggest crisis since 2008 after three US lenders collapsed and UBS Group agreed to take over its longtime rival Credit Suisse Group in a deal brokered by the Swiss government.
Though relative calm has been restored, financial analysts are calling for more coordinated interventions from central banks to restore financial stability, as they fear that tumult in the global banking sector will continue amid rising interest rates.
The banking crisis that, at times seemed poised to turn into a full-blown financial meltdown, came just as the global economic recovery seemed to be gaining momentum fanning hopes the world can dodge a recession.
“Recent stress in the banking sector has unequivocally complicated the US Federal Reserve’s mission of fighting
GCC banks remain unscathed by the global financial turmoil, owing to their solid liquidity buffers, low-cost and stable customer deposits, and insignificant exposure to failed banks in the US and Europe
inflation,” Lisa Shalett, Chief Investment Officer, Wealth Management at Morgan Stanley said in a note in March adding that it has made an economic recession much more likely.
However, GCC banks remain unscathed by the global financial turmoil, owing to their solid liquidity buffers, lowcost and stable customer deposits and insignificant exposure to failed banks in the US and Europe.
The region’s top five lenders – Saudi National Bank (SNB), Al Rajhi Bank, Qatar National Bank (QNB), First Abu Dhabi Bank (FAB) and Kuwait Finance House (KFH) – posted a combined annual net profit of $18.71 billion in 2022 and Moody’s said GCC banks are resilient to the US banks’ distress owing to broad franchises and their sovereign footprint.
The GCC financial service sector has weathered several storms in recent years from the 2008 global financial meltdown to the plunge in oil prices in 2014 to this year’s banking crisis. Of the six GCC states,
Qatar, Kuwait, Saudi Arabia and the UAE have a strong track record of supporting their banking systems in times of stress.
The month of March was laden with challenges for the global banking sector. However, despite the volatility in the global banking market, GCC banks are relatively well-placed to manage the contagion risk from this due to limited lending activity in the US and most of their assets in the US are likely to be high-credit quality instruments or with the US Federal Reserve Bank.
S&P Global said that out of the 19 GCC banks that it rated, only five have more than 5% of their assets in the US, while four banks have more than 5% liabilities to counterparts in the US. The rated banks’ exposure was pegged at 4.6% of assets and 2.3% of liabilities as of last year.
Moody’s echoed similar sentiments saying banks in the region are strongly interlinked with their respective sovereigns and remain unaffected by the global banking turbulence. This is due to Gulf banks’ broad franchises and large government presence across the lenders’ balance sheets.
SNB, invested as much as $1.5 billion in Credit Suisse Group last October for a stake of up to 9.9%. The largest commercial bank in Saudi Arabia saw its stake in the Swiss lender plummet to just $329 million following the UBS offer, according to Bloomberg calculations. However, SNB said its “strategy will be unaffected” by the reduced valuation of its investment in Credit Suisse as comments from the bank’s former chairman are blamed for triggering a slump in the stock and bonds that prompted the Swiss government to step in and arrange its takeover.
Kuwaiti banks also had “quite marginal” exposure to Silicon Valley Bank (SVB). The National Bank of Kuwait had ‘minimal’ exposure to SVB in off-balance sheet items in the form of letters of guarantee worth $4.9 million and the bank stressed that the exposure will not affect its financial position.
KFH’s exposure to SVB was valued at around $1.2 million and the bank said the exposure would entail no “fundamental financial effect” on the banking group’s financial status.
“Shares of banks globally and in the GCC region, especially, were affected due to fears of a contagion as the collapse of SVB was the biggest lender failure since the global financial crisis of 2008,” Kuwait-based asset management firm Kamco Invest said in a report while noting that the broader GCC banking sector is expected to experience limited indirect impact from the global banking crisis.
Oil-rich GCC investors have been backing global banks such as Credit Suisse for many years. According to Global SWF, during the financial crisis, sovereign funds in the UAE, Qatar and Kuwait ploughed about $69 billion into financial institutions such as Barclays, Merrill Lynch and Citigroup.
The economies of energy exporters in the Middle East are powering ahead as the oil boom and a rebound in domestic activity helped insulate them from a dual threat of slowing growth and soaring inflation—which is threatening to tip the global economy into recession.
SHARES OF BANKS GLOBALLY AND IN THE GCC REGION, ESPECIALLY, WERE AFFECTED DUE TO FEARS OF A CONTAGION AS THE COLLAPSE OF SVB WAS THE BIGGEST LENDER FAILURE SINCE THE GLOBAL FINANCIAL CRISIS OF 2008
– Kamco Invest
A rally in Brent prices, which traded mostly above the $100-mark last year, had the effect of pushing budgets of oilrich Gulf Arab states into the black for the first time in years and the spill over effect is being felt across the banking sector. 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.
GCC countries are still reliant on oil and gas, which accounts for 80% of the region’s total exports and revenues. However, governments are diversifying the economy with a strong focus on foreign investment, tourism, technology and the financial services sectors.
The increased global uncertainty is driving foreign investment inflow into the UAE while contributing to a boom in the real estate segments. The spectacular rebound in UAE’s property market is being driven by an influx of wealthy investors such as Russians seeking to shield their assets, crypto millionaires and rich Indians seeking second homes.
Meanwhile, the role of the financial services sector in Saudi Arabia has transformed at breakneck speed over the years and banks continue to capture the benefits of economic expansion evidenced by an increase in lending to both the private and public sectors. Bank lending to the private sector rose by 14% year-on-year to SAR 2.35 trillion at the end of 2022.
Other GCC countries including Oman, Qatar and Bahrain are implementing structural reforms that outline an image of the economy of the future that relies increasingly on the private sector playing a leading role in investment, job creation and value addition.
The soaring demand for digital financial services and the rapid adoption of fintech solutions are shaping the growth of the GCC banking sector while enhancing customer experience and industry competitiveness.
“Digital commercial banks can leverage capital and data while commercialising traditional cost centres by re-bundling their services and transforming into fully connected digital banks,” said KPMG.
Traditional banks in the Gulf region have invested billions of dollars in their digital channels to deliver a full range of hybrid value propositions and banking services to generate new income streams and enhance customer experience.
GCC central banks have long expressed an openness to new digitalexclusive entrants, even as regulations permitting such banks failed to materialise for many years. However, the year 2021 was a watershed moment in the region following the launch of the first digital-exclusive banks.
Nomo partnered with Abu Dhabi Commercial Bank (ADCB) and Al Hilal Bank in April, a deal that extends the digital bank’s services and products to customers in the UAE.
The GCC banking sector is at an inflexion point and the new innovative financial technologies are offering banks the potential to boost revenues at lower costs by engaging and serving customers in radically new ways using new business models.
– KPMG
Retail banks in the Gulf region are leveraging their existing resources to introduce speedboats – cloud-native digital spinoffs that enable faster time-tomarket for the launching of new products and market expansion.
Digital attackers or challenger banks such as Wio Bank and Zand Bank in the UAE and Saudi Arabia’s D360 Bank and stc Bank are fighting for market share with digital banking units of incumbent banks including Emirates NBD’s Liv., Bahrain’s Arab Banking Corporation’s (Bank ABC) ila Bank and Boubyan Bank’s Nomo.
The majority of incumbents in the Gulf region still rely heavily on complex legacy systems and to reduce IT complexity and enable agility and partners, banks are leveraging APIs as a catalyst to create new revenue streams, accelerate innovation and support new business models, including orchestrating new ecosystems.
Incumbents are taking a more sophisticated approach to their use of APIs to maximise the value they derive from these digital workhorses. The core technology for a digital-first enterprise must be fast, scalable, flexible, reliable and secure.
The oil-rich GCC is an example of an emerging global open-banking microcosm and PwC said the innovation has the potential to reshape the financial services landscape as regional countries are making considerable moves in this space.
hat do you feel are the reasons GCC banks performed well in the period coming out of the pandemic, particularly in 2022?
Subhradeep Mohanty Regional Chief Financial Officer, Africa & Middle East at Standard Chartered says that the regional banking sector is performing well, reflecting the encouraging economic performance GCC as a whole, and that the long term strategic plans for the local countries will provide a key role for banks here too
GCC banks are estimated to have grown income by 16% and profits by 25% in 2022, and the banking sector’s profitability & returns have returned to pre-pandemic levels across most countries. This is driven by a combination of the macroeconomic momentum in these economies and structural actions undertaken by the banks.
The GCC countries handled the COVID outbreak exceptionally well, and the subsequent recovery has been fast and robust. Higher oil prices and targeted growth in non-oil sectors have led to key GCC countries outpacing global growth in 2022, and the region generating ‘twin surpluses’ on fiscal balance and current account balance.
The banks in this region are well capitalised and have supported the postpandemic growth in the economy, with an average lending growth of 6-7%. Rising interest rates, mirroring the trends in the US, have helped net interest margins for GCC banks improve to a multi-year high of 3.0%. During this period, the banking sector has also accelerated the pivot towards digital models and fee-based businesses that have provided a lift to revenues & returns.
In summary, the underlying growth in the economy, the improvement in banking margins in a higher rate environment and the shift in business models have all contributed to the strong banking sector results in 2022.
Have global banks operating in the GCC mirrored the performance of locally based banks?
The positive performance in the GCC banking sector has been broad-based across local and global banks, driven by the themes that I have shared earlier.
In the Middle East, Standard Chartered Bank’s profits grew by 27%
in 2022, while Q1’23 profits were almost 90% higher than Q1’22. Our profitability and returns are now at the highest levels since 2015. This is underpinned by the continued support to our clients in their growth requirements across our network, differentiation through leading digital capabilities, leadership in the sustainable financing space and disciplined deployment of capital, liquidity or operating resources.
The region is well positioned to outpace global growth, and we are excited about the opportunities ahead of us in the region.
The World Bank predicts GCC growth reducing to 3.2 percent in 2023 from 7.3 percent in 2022. How will this affect the GCC banking sector?
While GCC growth is expected to moderate due to an expected slowdown in some major global economies and the anticipated trajectory of oil prices, there are promising opportunities in the region and the outlook for the banking sector is positive.
The long-term strategic plans for key GCC countries include large scale investments in diversification of the economy – from traditional non-oil sectors like trade, tourism, hospitality, financial services and manufacturing to new areas like digital financial assets and alternative sources of energy. New trade partnerships within the region, and with Asian countries like China, create higher growth opportunities as compared to the more mature economies in the west. The inflow of global talent and individual wealth has seen a large increase post the pandemic, and this momentum is likely to sustain in the medium term.
These are positive trends for the banking sector that will play an important role in these growth areas. The sector will also see a lift from higher margins in 2023, as the benefits of recent rate hikes play out in the banks’ books in a lagged manner.
Lower global liquidity is not expected to have a major impact on GCC’s banking sector due to its strong net external asset
positions or limited net external debt positions. Credit losses will moderate with higher rates but are expected to be within acceptable levels.
Banks in this region have expanded internationally in the past, primarily to support their clients in other countries in the region or key trade corridors, and to provide access to global financial hubs like NY, London, SG and HK.
Future expansion plans are likely to be based on a similar “follow the client” approach, which will require new corridors to be serviced, and diversification of revenue streams away from the domestic economy.
How different will the GCC’s banking sector look by 2030?
One of the learnings from the global
commitments and will be pioneers in certain areas of alternative sources of energy; GCC banks will play an important role in this transition.
• Technology will radically transform the banking landscape globally, with new business models and partnerships. Banks will increasingly become a platform to provide a suite of financial solutions offered by a range of providers.
• GCC banks have an important role in the technology-led transformation, driven by a young population, high levels of adoption of emerging technologies and access to investments for innovation.
• The workplace will be a hybrid one where humans & bots co-exist, and the organisational structure will be flatter and more fluid.
Standar d Chartered is investing heavily in the digital experience for clients, to give them access to quick, easy and seamless connectivity, and
crises over the last few years is the highly unpredictable nature of the global economy, and the perils of ‘crystal ball gazing’! Having said that, I have taken a shot at what could be thematic, longerterm trends (2030 or beyond).
• The region will grow in prominence in the global arena, and there will be larger cross-border flows and crosspollination of talent.
• The GCC banks will see a similar growth in global reach and connectivity and will have access to a more diverse talent pool.
• GCC economies will have significant success against the Net Zero
improving their services to others in the ecosystem. The investments are in both proprietary and partnership-led capabilities, which provide the best solution for our clients.
At Standard Chartered, we aim to be an industry leader in the transition to net zero across the region. Globally, we are doubling down on efforts to achieve net zero carbon emissions from our operations by 2030. We remain at the forefront of the move to greater sustainability, with project financing services, M&A advisory and debt structuring services for renewables and clean-tech projects such as solar and wind.
THE REGION IS WELL POSITIONED TO OUTPACE GLOBAL GROWTH, AND WE ARE EXCITED ABOUT THE OPPORTUNITIES AHEAD OF US IN THE REGION
Rajesh Nagpal Director Financial Services, GBM underlining the epochal changes the business and financial worlds are currently undergoing, highlights the important role that Hybrid Cloud performs in supporting growth and operational continuity in the banking sector
In a constantly changing world, one constant that we can agree on is that most industries are going through dynamic changes. The fast-evolving technological landscape and significant business disruptions have pushed organisations to focus on improving their business resiliency, with an increased focus on digital resiliency. With the global economy today being driven by digital-native consumers and the disruptive digital business models of new players, strategies and innovations
across industries are drastically changing, and the banking industry is no exception to this.
Over the last few years, regional banks have been on robust digital transformation journeys, with significant investments in IT infrastructure optimisation, in order to meet growing customer demands and expectations for digital services.
Rajesh Nagpal Director Financial Services, GBM
The banking sector in the UAE specifically, has been one to quickly adapt to market and technology shifts. The sector has been taking strides to keep up with the pace of IT innovation, with banks working at digitalising operations and creating IT-supported business functions. However, the industry now stands at the forefront of another technology-led turning point: the rise of the digital economy. With the UAE Digital Economy Strategy underway to double the contribution of the digital economy to the UAE’s GDP to 19.4 percent by 2031, thriving in this future economy is becoming even more pertinent.
Therefore, banks need to start putting strategies in place now to help them prepare for this future. Accelerating their digital transformation and incorporating emerging technologies is an essential pillar of this, and one technology is emerging to be key to this process. At the heart of undertaking this journey, Cloud technology is proving to be a vital player for fostering new and innovative banking paradigms.
Banks looking to build digitally resilient businesses are turning to the use of cloud services to gain significant
competitive advantage. Regional banks are exploring the move to cloud – both private and public clouds, as cloud services can provide them with scalable, reliable, fast to deploy, integrated digital platforms for business continuity, while also enabling them to launch products faster and drive insights-led decisions from their data.
But, even with the benefits, the industry is still quite apprehensive about moving to the cloud due to the sensitive nature of the data and information at hand, as well as stringent regulatory requirements. However, we are seeing a slow shift where hybrid cloud is becoming the go-to architecture for banks to thrive in digital economy. Due to the nature of its mixed computing environment, hybrid cloud is helping banks adhere to regulatory, compliance, and security requirements, while also avoiding vendor lockdown.
Through hybrid cloud, banks can react to new innovations with greater agility, scale operations efficiently, and deliver better experiences to customers and users. The easy leveraging of containers and cloud-native tools will benefit banks as they strive to modernise their legacy applications and collaborate in open banking ecosystems. The API banking environments help banks to experiment with new technologies and innovative use cases, eventually leading to these features, applications, and services being incorporated into a bank’s core operations. Such open environments thrive on flexibility and scalability, making cloud the preferred deployment model for open banking.
Hybrid cloud can also further enhance the banking industry by enabling banks
to focus on customer-centric models, actionable data insights and advanced analytics. They would be able to gain easy access to and experiment with emerging technologies such as AI/ML, as well as blockchain. Ultimately, this would help the industry re-imagine how technology can improve business operations through using new tools and capabilities and translating innovation into action.
Although hybrid cloud is an undeniable asset to leverage within the banking industry, implementing it without the right strategy may present several challenges for organisations, such as complexity, security, data governance, integration, and cost optimisation.
To fully capitalise on digital opportunities and leverage the advantages of a hybrid cloud, banks need to carefully consider their cloud strategy, infrastructure decisions, and workload optimisation. GBM can assist banks in this process by offering end-to-end digital solutions and expertise in assessing and optimising existing environments.
There is no doubt that hybrid cloud is moving to the forefront of IT investments and discussions among C-suite executives and board members. Implementing a cloud architecture and cloud services within an organisation has consistently proven to support operational continuity and overall growth across the years. For banks, accelerating their digital transformation efforts towards experiential, collaborative, and automated banking paradigms built on cloud-based IT foundations would prove to be essential in unlocking business model innovation and preparing for the digital future.
BANKS LOOKING TO BUILD DIGITALLY RESILIENT BUSINESSES ARE TURNING TO THE USE OF CLOUD SERVICES TO GAIN SIGNIFICANT COMPETITIVE ADVANTAGE
THROUGH HYBRID CLOUD, BANKS CAN REACT TO NEW INNOVATIONS WITH GREATER AGILITY, SCALE OPERATIONS EFFICIENTLY, AND DELIVER BETTER EXPERIENCES TO CUSTOMERS AND USERS
Over the past decade, banks in the Middle East have become increasingly focused on digital transformation. And according to a recent study by Mordor Intelligence, this focus is beginning to take the form of substantial progress for the region, with the digital payments market in the Middle East and North Africa estimated to achieve a compound annual growth rate (CAGR) of more than 15% over the next five years.
There are a number of excellent reasons why this should be the case. For one thing, widespread technological innovation, evolving regulations and a growing demand among consumers for digitalisation over the years has created an environment in which transformation is imperative. In fact, research from McKinsey dating back to 2016 revealed that 80% of consumers in the UAE were willing to move at least a portion of their funds to an institution offering modernised, digital-only banking solutions.
But beyond navigating the inevitable tides of change, an accelerated digital transformation strategy presents no shortage of additional benefits. These include everything from dramatically improved customer service and operational efficiency to significant cost reduction and time savings related to updating and maintaining critical IT infrastructure. And as modernisation
efforts accelerate across the global banking sector alongside regulatory developments, institutions are now racing toward the opportunity to capture market share and gain a competitive edge.
As it turns out, all of the above drivers are equally applicable to the more specific category of payments modernisation. Moreover, taking a payments-first approach is almost certainly the fastest, most efficient way to realise the full spectrum of benefits associated with a full-scale digital transformation.
Perhaps the best way to understand this is to consider that the vast majority of digital services that banks intend to deliver are actually based on payments, as are emergent compliance initiatives such as the implementation of the ISO 20022 messaging standard. And as evidenced by both the introduction of the new standard as well as government initiated real-time payments rails around the world, including the UAE’s National Instant Payments Platform (IPP), the key to securing a competitive advantage will be a bank’s agility as it relates to integrating modernised, digital-native payments solutions.
The importance of payments modernisation is fortunately not lost on Middle East banks. In Volante’s 2022 survey on international payments trends, 22.3% of MEA organisations confirmed they had modernisation plans scheduled
for the next 1-2 years. Additionally, Volante’s direct discussions with leaders in the space continue to suggest an urgency around the implementation of real-time, 24/7 payments capabilities, as well as gaining the broader ability to provide innovative, value-added services for both consumers and corporate clients.
Understanding the overall objective, the most important thing going forward is that payments modernisation is tackled efficiently. More specifically, banks should be looking to circumvent the time and cost-intensive burden of replacing entire legacy systems by implementing modern, cloud-native and Payments-as-a-Service (PaaS) based technologies, and ideally those that offer highly configurable, ISO 20022 fluent, and microservices and API enabled payments solutions.
At the end of the day, there is no escaping the fact that payments exist at the core of the broader digital transformation of the financial services sector, and this is something that banks in the MEA region should continue to embrace with open arms. Whether the goal is improving customer satisfaction and retention or raising the competitive bar through the introduction of new features and capabilities, payments modernisation provides institutions with the clearest path toward an increasingly bright and innovative future.
Vijay Oddiraju CEO, Volante Technologies highlights the advance of digitisation in Middle Eastern banks, underlining that placing payments in a leading position should be central when banks consider the delivery of digital services
