3 minute read
A journey of banking transformation
By Walter Sebele
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GCC countries are still reliant on oil which accounts for three-quarters of the sixnation bloc’s spending. A sharp decline in oil prices together with production cuts in line OPEC pledges and disruptions in trade and tourism due to the outbreak of the COVID-19 virus has added further headwinds to growth in the region.
The GCC region boosts of some of the world’s renowned financial centers and growth in banking assets is linked to regional GDP, which moves largely in tandem with oil prices. According to Moody’s, “Banks in the GCC region will see profits fall this year as economies shrink amid the coronavirus outbreak and lower oil prices, but have adequate capital underpinning their solvency.”
Despite these challenges, Gulf lenders are coming up with ways to resist external shocks ranging from digitalization, reducing a glut of banks in the region through synergies and sustainable financing.
Merger & Acquisitions
Analysts expect the impact of the coronavirus pandemic, low oil prices, and plunge in oil demand together with weak economic growth to drive consolidation in the GCC financial services sector as banks seek ways to improve competitiveness and boost capital amid slowing growth.
“We have seen some recent examples across the region of banks coming together to compete on a regional and global scale. This trend is likely to further gain impetus in the coming months and years,” said Vineet Madan, Head of Retail Banking & Deputy Regional Manager, Banque Misr, UAE, and Gulf Branches.
The merger between the National Commercial Bank (NCB) and Samba Financial Group could establish a megabank and the emerged entity will have a total asset base of $213 billion putting NCB on an equal footing with regional rivals in Qatar and Abu Dhabi.
Oman Arab Bank completed its acquisition of Alizz Islamic Bank through a share swap deal earlier in July in a deal that is expected to create a lender with more than $8.3 billion in assets.
Similarly, Dubai Islamic Bank (DIB) completed its takeover of Noor Bank through a share swap deal, in a deal that is expected to position DIB as one of the largest Islamic banks in the world with total assets exceeding $74.9 billion.
Digital transformation
GCC banks are pro-innovation and industr y experts expect them to continue to dominate the banking scene even as the sector goes more digital. Similarly, the banks’ tech-sav v y customers and regulatory initiatives such as regulatory sandbox and open banking will also accelerate the banks’ digital transformation.
Abdulfattah Sharaf, CEO UAE & Head of International, HSBC Bank Middle East Limited, said, “Technology, innovation, and sustainability are clear priorities for the banking sector not only in the region but globally.”
The World Bank hailed GCC central banks for their extensive record of fintech regulatory innovation. The Gulf central banks were among the first to launch regulatory sandboxes and crowdfunding regulations in the emerging markets.
In the UAE, DIFC Fintech Hive and ADGM’s FinTech Digital Lab are some of the region’s largest financial technology accelerators that are supporting FinTech, InsurTech, RegTech and Islamic FinTech startups to transform their ideas into working prototypes to accelerate the development and market introduction of digital banking products and services.
With financial technology developing rapidly, and profits, soundness indicators and asset growth remaining healthy despite the impact of COVID-19, the banking sector is well-positioned to continue leading non-oil growth and diversification in the Gulf.
