Alex
14 AI & Robo-advisory | 24 Equity Capital Markets | 36 Neobanking | 50 Metaverse Payments | 58 Real Estate Investments
Gemici Chief Executive Officer, Greenstone Equity Partners Invested in the RegionInvested in the Region September 2022
Damien Hitchen, CEO of Saxo Bank, MENA gives us his views on portfolio management in uncertain times, from page 48, in her opinion piece at page 62, Sally Bou Jaode from Avaya describes the challenges of keeping compliant as personal touches become part of the digital world and in our regular look at banking technology, from page 52, AFS talks with us about developments in the payments sector and Infosys putting forward that hybrid multi cloud is the right step ahead in banks’ digital journeys.
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From page 24, our look into the regions Equity Capital Markets (ECM) shows how the region is performing and how a good H1, 2022 for IPO’s, and promising fundamentals too, are pointing to sustained success, “There are lots of reasons to be confident that the current success can continue”, says Arjun Mittal, Abbey Road Investment Group. Also contributing directly on ECM in this issue are Citi on page 28 and Emirates NBD later on page 46.
Alternative regional and international investment perspectives and insights are provided by Walton International, looking at opportunities in the US housing market, starting at page 58, and Invesco, in their opinion piece on page 60 highlighting alternatives as a way to improve yields and hedge against inflation.
Do you feel lucky?
Our cover story this issue features Alex Gemici, Chairman & CEO at Greenstone Equity Partners, talking about the development of the investment market across the GCC in the past ten years, “, over the past decade, there has been a clear movement-to-quality by GCCOurinvestors.”MarketFocus this time looks at Egypt and the efforts being made to battle against inflation and the knock-on effects of current geopolitical strife. Following this, on page 14 starts our look at Robo-advisory where our contributors, CBD, IBM and Sarwa detail the revolution in investment opportunities this technology is bringing to theThemarkets.growing presence of Neobanks in the region is looked at from page 36 with the Dubai Financial Services Authority, Securrency Capital and Zand providing their outlook for the evolving banking ecosystem and where it may be heading in the coming years, “we expect the offering of neobanks to expand beyond retail products and services”, predicts Mohamad El Khalil, from the DFSA. While adding further to the theme of new forms of financial activity, from page 50, Ramana Kumar, CEO of Magnati talks about their move into Metaverse banking.
A tiresome trait, prevalent among expats in media, is the peppering of narratives with stereotypical metaphors or phrases referencing the regional environment – Sands of Time, Just Deserts, Only a Mirage, etc. Sadly, we are no exception to this unoriginal habit as, in the September 2022 issue of MEA Finance, we take a look at the Oasis of Calm in a world of challenges, which is the region’s Equity Capital Markets: currently putting us in a better place than most otherBeforeareas.describing the array of features and articles in this issue, we look forward to welcoming you to MEA Finance, Wealth & Investment Summit and Awards, at the Park Hyatt Hotel, Dubai, on . Register as a delegate at www.mea-finance.com to enjoy high-level and topical debates with leading industry and sector personalities, and a special presentation by Bret King, world recognised futurist and best selling author.
Finally, we proudly managed to make this introduction without stereotyped bovine or ursine references to the equity markets and can now welcome you to this editorial oasis that will provide you with a plentiful variety of reading delights.
4 Banking and Finance news in the MEA market CONTENTS CONTENTS MEA WEB:Financewww.mea-finance.com EMAIL: info@mea-finance.com PUBLISHED BY: Creative Middle East Media FZ LLE, 19th Floor, Creative Tower, Fujairah Creative City, PO Box 4422, Fujairah, UAE 32 MARKET NEWS 6 First Abu Dhabi Bank (FAB) launches multiple-thematic fund, the ‘FAB Thematic Rotation Fund’ MARKET FOCUS 10 Pushing Through Turbulent Times AI & ROBO-ADVISORY 14 Personalised advice in the digital age 18 Come One, Come All 20 Evolution in Action EQUITY CAPITAL MARKETS 24 Middle East equity markets, a success story 28 A Market–Leading Market COVER STORY 32 Invested in the Region 36NEOBANKING The evolution of digital banking 40 The Neo Normal 42 Moving Ahead in the Game 44 Digital DNA
5mea-finance.com MIDDLE EAST EQUITIES 46 Uptrend Likely Continues PORTFOLIO MANAGEMENT 48 Wealth and Portfolio Management in Periods of Market Uncertainty METAVERSE PAYMENTS 50 A New Dimension of Possibilities BANKING TECHNOLOGY 52 Payments, Past, Present and Pending 54 Why Banks must prepare for a hybrid multi-cloud future PARTNER CONTENT 56 Fintechs in an ESG-Focused World REAL ESTATE INVESTMENTS 58 Seeing Past Sentiment: Getting Ready for a U.S. Housing Reset OPINION PIECE 60 Exploring alternative investments to improve yields and hedge inflation 62 Keeping compliant as the UAE’s workforce defaults to digital 50 6 10 14 60 EXECUTIVE DIRECTOR AND PUBLISHER Kenneth ken.mitchen@mea-finance.comMitchen GROUP COMMERCIAL DIRECTOR Nap nap.estampador@mea-finance.comEstampador Tel : +971 50 100 5488 DIRECTOR Andrew andrew.cover@mea-finance.comCover Tel: +971 50 931 3236 Dubai office: #404, Building B, Al Saaha Offices, Old Town Island Burj Khalifa District PO Box 487177, Dubai, UAE Email: info@mea-finance.com EVENTS AND MARKETING MANAGER Cris crissyb@mea-finance.comBalatbat Tel: +971 58 594 4818 EVENT AND CONTENT PRODUCER Natasha natasha@mea-finance.comCristi Tel: +971 50 303 4235 SENIOR DESIGNER Florante Magsakay Tel: +971 52 570 1811 ADMIN AND FINANCE MANAGER Marilyn marilyn@mea-finance.comNainque Tel: +971 58 5025836 WEB ASSISTANT Marie web@mea-finance.comOrayan FEATURE CONTRIBUTORS: Mushtak Parker, Walter editorial@mea-finance.comSebele
6 Banking and Finance news in the MEA market F
THIS IS AN EXCITING OPPORTUNITY FOR INVESTORS TO STAY AHEAD OF THE SOCIAL, ENVIRONMENTAL AND ECONOMIC CURVE AND TO ENJOY ACCESS TO THE TRENDS OF TOMORROW
First Abu Dhabi Bank (FAB) launches multiple-thematic fund, the ‘FAB Thematic Rotation Fund’
Samira Zakour, MD & Head of Private Banking & KCG at FAB said: “This is an exciting opportunity for investors to stay ahead of the social, environmental and economic curve and to enjoy access to the trends of tomorrow. The fund offers clients a cost-efficient product to capture attractive investment opportunities across long-term trends, managed within a diversified, multi-assed class portfolio.”
and asset classes over time allows the strategy to adapt to different market conditions. Investors will be able to access multiple investment themes focused on innovation and long-term growth while seeking to maximise diversification. Based on a combined systematic and disciplined discretionary approach, the portfolio construction process leverages the diversification, liquidity and transparency benefits of cross-asset thematic exchange traded funds (ETFs). Through a reduced number of transactions, the fund gives our clients access to renowned experts involved in the design and evolution of the underlying index strategies, and benefits from diversified investments in ‘pure play’ companies within each theme.
irst Abu Dhabi Bank ( FAB) has launched a multiple-thematic fund, the ‘FAB Thematic Rotation Fund’ under the OneShare PLC umbrella fund which is regulated by the Central Bank of Ireland. Through this fund investors will have access to global investment opportunities across themes and trends arising from long-term structural changes, called Megatrends , shaping the world of tomorrow: Technology Innovation, Rising Urbanization, Environmental Changes, Next Gen Economies, and Demographic Shift, as defined by the Trackinsight Thematic Taxonomy.
FAB Thematic Rotation Fund invests beyond traditional geographical, sector and style boundaries to capture global growth opportunities from investment themes across various asset classes. The dynamic rotation across themes
Gerardo Amo, PhD, MD & Head of Products & Solutions Switzerland at FAB said: “Based on a full open architecture framework, we bring together industry experts to capture the best investment opportunities arising from undeniable disrupting forces reshaping the world of tomorrow. The FAB Thematic Rotation Fund benefits from a strong ETF selection process along a dynamic theme allocation model, based on deep research by a highly experienced investment team.”
First Abu Dhabi Bank (FAB)
MARKET NEWS
Alex Gemici Chief Executive Officer Greenstone FarzadPartnersEquityBillimoria Head of Banking,PrivateUAE BrettHSBCKingFuturist,Author,BestsellingFounder-Moven,MediaPersonality An Kelles Director - GCC Jersey GeorgeFinanceHojeige Chief Executive Officer DamianVirtugroupHitchen Chief Executive Officer Saxo Bank MENA Arjun Mittal Founder Abbey HaithamInvestmentRoadGroupJuma Unit HeadSolutionsInvestment National Bank of DamienFujairahMorgan Senior Wealth Planner HSBC Anita Gupta Head of StrategyEquity Emirates NBD Ismael Hajjar Partner, Entrepreneurial Private Business, Family Office Services PwC Middle East Devesh Mamtani Chief Market Strategist Century Financial Dr. Bhaskar Dasgupta Independent Board Director, Senior Advisor Sheikh Hamdan Bin Ahmad Al Makhtoum Private Office Leevyn Isabel PrivateDirectorClients DevidOcorianJegerson Head of Customer Experience and DevelopmentPlatform National Bank of Fujairah Biju Thomas Senior Director, Private Banking MarioMashreqAl-Jebouri Managing Director & Head of Middle East Banque Cantonale de Genève (BCGE) Faisal Hasan, CFA CIO, Head of ManagementAsset Al Mal Capital, UAE Speakers Include Organised by: www.mea-finance.com REGISTER NOW Park Hyatt Dubai United Arab Emirates 27 September 2022
For inquiries, call +971 50 1005488 / +971 50 9313236 or email: info@mea-finance.com Rahul Chopra Head of Dubai, Senior Executive Officer & Managing Director CharlesAssociatesMonat Mubashar Ayoob Head of ManagementWealth-Gulf Deutsche Bank Shadi AlNasr Principal - Global Family Office The Bank of New York Mellon Mustafa Bosca Managing Director and Partner BostonGroupConsulting Tim Searle Founder and Chairman Globaleye Nabilah Annuar MEA Finance Samir Raslan Vice Chairman of Origination Citi Global Wealth - EMEA Neale Croutear-Foy Chief Technology Officer Securrency Capital Vipul Kapur Managing Director & Head of Private Banking Mashreq Dr. Niels Zilkens Lead Market Head Arabian Gulf & NRI UBS Global ManagementWealth Al-GharaballyOmar Chief Investment Officer GreenstonePartnersEquity https://www.wealthandinvestmentsummit.com/2022/ The MEA Finance Wealth & Investment Summit 2022 is a premium forum providing key industry information, discussing the latest developments shaping the investment landscape today and debating the trends, opportunities and challenges facing the private banking and wealth management providers in the region. It is an exclusive gathering of over 300 private and institutional investors, family offices, high net-worth individuals, senior investment executives, private bankers and wealth managers. Following on from the summit comes our Wealth & Investment Awards 2022 which recognizes leading investment banks, private banks, wealth advisors, and technology providers in the region for their achievements, product innovation, and leadership in safeguarding and protecting the financial wellness of private individual investors and family offices. LEAD PARTNER GOLD SPONSORS SUPPORTING PARTNERS BADGE SPONSORLANYARD SPONSOR ASSOCIATION PARTNER
Oil-rich Gulf states have lined up to offer Egypt billions of dollars in cash deposits Egypt has ramped up efforts to fight inflation including devaluing the pound as part of the authorities’ broader strategies to hedge the economy from the spillover effects of the war in Ukraine
Pushing TurbulentThroughTimes
However, the fund urged the government to take further steps to foster private-sector development, improve governance and reduce the role of the state as the authorities seek a new loan to bolster an economy battered by fallout from the war in Ukraine.
Egypt has ramped up efforts to fight inflation, including devaluing the pound amid investment inflows from the country’s GCC allies as the authorities seek to hedge the economy against the worst of the problems. The cabinet also approved the pre-listing procedures for two military companies as the country moves to boost wider private sector participation in state-owned assets.
the most populous Arab nation’s growth prospects, the IMF projected in July that the economy will expand by 5.9% in 2022.
MARKET FOCUS
10 Banking and Finance news in the MEA market E gypt is among emerging economies that remain vulnerable to the shocks that ripped through commodities markets following the start of the war in Ukraine on 24 February 2022. The redhot inflation and market upheavals that followed the war are contributing to the country’s worst foreign-exchange crunch since a dollar shortage five years ago that prompted the devaluation of the pound and eventually led to a $12 billion International Monetary Fund (IMF) loan.
Very useful friends
“Decisive progress on deeper fiscal and structural reforms is needed to boost the economy’s competitiveness, improve governance and strengthen its resilience against shocks,” the IMF executive board said in July. Since 2016, the government’s fiscal reform measures were critical in stabilising the economy and kept the pound largely stable until the Central Bank of Egypt (CBE) allowed it to weaken sharply in March to combat inflationary waves that were triggered by high oil prices.FitchRatings does not expect the currency devaluation to affect banks’ capital ratios significantly and sees Egypt’s current account deficit declining to 3.5% of GDP in the fiscal year 2022/23 from 4.6% in fiscal 2021/22.
Though the impact of the war in Ukraine on the Egyptian stock market and the prolonged pandemic threatens to derail
The launch of the investment firm by the PIF comes nearly a month after Saudi Arabia and Egypt signed 14 investment pacts valued at $7.7 billion. Saudi Arabia also deposited $5 billion in the Egyptian central bank in the first quarter of this year. The UAE also unveiled a package of investments worth some $2 billion in March and since then several Emirati companies have snapped up stakes in key Egyptian companies. Abu Dhabi wealth fund ADQ acquired stakes in five publicly traded companies including Commercial International Bank, the country’s biggest private bank, electronic payments provider Fawry and Misr Fertilizers Production Company through a $20 billion joint investment platform with the Sovereign Fund of Egypt. Other Abu Dhabi-based companies including property developer Aldar Properties, fuel and retail distributor ADNOC Distribution and First Abu Dhabi Bank (FAB) have poured billions of dollars into swathes of Egypt’s economy. Meanwhile, Qatar said in March that it had allotted $5 billion to invest in Egypt and such funding is welcome for the country, where the economy is being put under increasing pressure from the shockwaves of the war in Ukraine.
11mea-finance.com and investments since the beginning of the year. The Arab world’s most populous nation has secured pledges of more than $22 billion from Saudi Arabia, the UAE and Qatar to shore up its finances as it seeks a new loan from the IMF. Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), launched a company in August to invest in promising sectors throughout Egypt. The wealth fund said the Saudi Egyptian Investment Company (SEIC) will invest in the country’s “promising sectors” from infrastructure and real estate to pharmaceuticals.
The best-laid plans Under the leadership of President Abdel Fattah Al-Sisi, Egypt is accelerating infrastructure development that includes a rapid development of the road network and an expansion of the Suez Canal. The country is on track to gradually start the shifting of government employees to the New Administrative Capital, a new city that is being built 45 km east of Cairo, by the end of the year. The new city, whose first phase is valued at around $25 billion, is designed to eventually house 6.5 million people to ease overcrowding in central Cairo. Egyptian lawmakers approved the budget for the fiscal year that commenced July 1, 2022, in June and the government projected that expenditure would surge by 15% to $108.3 billion
Egypt’s cabinet approved the pre-listing procedures for two military companies, petrol station operator Wataniya Petroleum and water company National Company for Producing and Bottling Water (Safi) in July, as the government seeks to offload minority stakes in at least 20 state-owned enterprises on the local bourse. Last year, the Egyptian authorities offloaded a 51% stake in Arab Investment Bank (aiBANK) in a deal valued at $163 million (EGP 2.55 billion).
DECISIVE PROGRESS ON DEEPER FISCAL AND STRUCTURAL REFORMS IS NEEDED TO BOOST THE ECONOMY’S COMPETITIVENESS, IMPROVE GOVERNANCE AND STRENGTHEN ITS RESILIENCE AGAINST SHOCKS Monetary Fund
– The International
THE DEBTINTOOVERSEASBYOVERSHADOWEDHAVE,INVESTMENTSATTRACTASSETSBETTERHELPINGISFUNDSOVEREIGNOFEGYPTAIMEDATEGYPTUTILISEITSANDTOFOREIGNTHATSOFAR,BEENANINFUSIONOFCASHTHELOCALMARKET – PwC
Egypt’s wealth fund, which was founded in 2018, is part of the country’s broader structural reforms that are aimed at bolstering private investment. The fund is modelled after those in the GCC region and is aimed at generating additional wealth from under-utilised state assets. PwC said the fund is aimed at helping Egypt better utilise its assets and to attract foreign investments that have, so far, been overshadowed by an infusion of overseas cash into the local debt market. With around $12 billion in assets under management, the Sovereign Fund of Egypt is partnering with the private sector to attract domestic and foreign investments as well as build on economic reforms which began in 2016 with the flotation of the currency. It was appointed by the country’s ministry of defense to sell part of a portfolio of companies in what would be the country’s first spin-off of companies owned by the military.
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There has been a wave of dealmaking in Egypt’s banking sector and the operating environment is expected to become highly competitive after investors pulled billions of dollars out of the country’s treasury markets, forcing the central bank to devalue the currency.
THE SIGNIFICANT NARROWING IN EGYPT’S FOREIGN-EXCHANGE RESERVE BUFFER TO MEET UPCOMING EXTERNAL DEBT SERVICE PAYMENTS AS THE ONGOING WAR IN UKRAINE WEIGHS ON THE COUNTRY’S FINANCES
UAE’s FAB rebranded its Egyptian unit as ‘FABMISR’ in June following the completion of its merger with Bank Audi Egypt. FAB, the UAE’s biggest lender, completed its acquisition of 100% of the share capital of the Egyptian unit of Lebanon’s Bank Audi. Egyptian universal bank EFG Hermes completed its takeover of state-owned aiBANK in November 2021—the country’s first privatisation since 2006 when it sold a majority stake in the Bank of Alexandria.
13mea-finance.com (EGP 2.07 trillion) in 2022/23 from $94 billion (EGP 1.79 trillion) while deficit will jump by 14.5% to $29.2 billion (EGP 558.2 billion).
Moody’s in May warned of a significant narrowing in Egypt’s foreign-exchange reserve buffer to meet upcoming external debt service payments as the ongoing war in Ukraine weighs on the country’s finances. Data from the central bank showed that Egypt’s net international reserves fell in July for the third time this year. CBE said that the figure declined to $33.4 billion at end-June from $35.5 billion a month earlier, following a dip in March and a $2 billion plunge in May. However, the Egyptian government is negotiating with the IMF for a new loan to bolster an economy that saw as much as $20 billion in foreign outflows after investors in local debt exited what had been a favourite market.
Though the IMF applauded Egypt’s efforts to bolster confidence through a stable currency, the fund noted that “greater exchange rate variability during the Stand-By Arrangement (SBA) could have been entrenched to avoid a buildup of external imbalances and facilitate adjustment to shocks.” The central bank, which raised its key interest rates by 200 basis points (bps) in May, kept its interest rates unchanged for a second consecutive meeting in August but acknowledged that the war in Ukraine is among the main external shocks to prices. CBE is expected to deliver another interest rates hike after the US Federal Reserve enacted its second consecutive 75 bps hike in July—the central bank’s biggest since 1994.
Banking sector Egypt’s domestic banking sector remains very liquid, with high deposit growth off a low base of financial inclusion. “Egyptian banks’ net foreign assets should continue to recover following the devaluation of the Egyptian pound due to a boost to foreign investor confidence from a more flexible exchange-rate regime and a new IMF programme,” Fitch Ratings said in May.
Bahrain’s Arab Banking Corporation (ABC) also completed its acquisition of BLOM Bank Egypt last August for $425 million. The deal more than doubles Bank ABC’s branches in Egypt while diversifying the lender’s service offerings for wholesale, retail as well as SME and corporate customers. The scale achieved from these mergers is leading to improved liquidity management, enhanced profitability and reduced inefficiencies with better cost-to-income ratios.
Egypt is leaving no stone unturned in its bid to boost its coffers and lure foreign investors who fled during the 2011 uprising. The country undertook exchange rate, monetary and fiscal measures to protect the economy from adverse global developments including soaring prices and tightening financial conditions stemming from the war in Ukraine. However, fiscal and structural reforms to enhance private investment, exports and foreign investment remain crucial for the economy’s resilience and competitiveness.
– Moody’s EGYPTIAN BANKS’ NET FOREIGN ASSETS SHOULD CONTINUE TO RECOVER FOLLOWING THE DEVALUATION OF THE EGYPTIAN POUND DUE TO A BOOST TO FOREIGN IMFREGIMEEXCHANGE-RATEACONFIDENCEINVESTORFROMMOREFLEXIBLEANDANEWPROGRAMME – Fitch Ratings
Egypt, a major food importer, has struggled to deal with record grain prices fuelled by the conflict in Europe. During a state visit to Germany in July President El-Sisi said he’d ask “our friends in Europe” to help convey a message to international financial institutions such as the IMF and the World Bank that “the reality in our country can’t support” the kinds of steps that might be called for while the current crisis persists.
The ability to swiftly innovate and effectively meet client expectations while capturing future growth segments is turning into a core asset in the wealth management sector
igital transformation has been a key battleground for financial services providers in the Middle East region—a competition that was intensified by the outbreak of the coronavirus more than two years ago. The ability to swiftly innovate and effectively meet client expectations while capturing future growth segments is turning into a core asset in the wealth management sector.
14 Banking and Finance news in the MEA market
Wealth managers are being confronted by 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. Meanwhile, the changes in demographics, technological innovations, environment and social behaviours have set the ground for rapid transformation in the wealth management industry.
“The acceleration in market and competitive wealth management trends, along with the confidence many firms have gained in their remote delivery management amid increasing focus on responsible investing while emphasizing the role of wealth managers in supporting socio-economic ecosystems.
AI & ROBO-ADVISORY
Personalised advice in the digital age D
The next frontier Wealth management 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 longerThoughsufficient”.incumbent banks in the Middle East region are working on strengthening capability, have set the stage for a strategic reset of firm operating models,” saidTheDeloitte.pandemic accelerated preexisting trends in wealth management by changing the way wealth managers deliver advice and serve their high-networth individual (HNWI) clients. Globally, the wealth management segment is evolving, and the Middle East market is no Accordingexception. to BlackRock, COVID-19 accelerated digitisation of processes and client propositions, a shift towards centralised portfolio and risk
THE ACCELERATION IN MARKET AND COMPETITIVE WEALTH MANAGEMENT TRENDS, ALONG WITH THE CONFIDENCE MANY FIRMS HAVE GAINED IN THEIR REMOTE DELIVERY CAPABILITY, HAVE SET THE STAGE FOR A STRATEGIC RESET OF FIRM OPERATING
MODELS – Deloitte THE MIDDLE EAST AND AFRICA’S ROBOADVISORY MARKET IS PROJECTED TO GROW AT AN OVERALL COMPOUND ANNUAL GROWTH RATE (CAGR) OF 55.9% TO $3.8 BILLION BY 2023 – Kenneth Research
Kenneth Research said that the Middle East and Africa’s Robo-advisory market is projected to grow at an overall compound annual growth rate (CAGR) of 55.9% to $3.8 billion by 2023. Robo-advisory platforms in the region are quickly taking off, with several homegrown players having recently joined the onrush.
The Robo-advisory solution provider launched two new smart portfolio themes, Cryptocurrency and Inflation Protection, in June and plans to expand its services to prime retail investors with a minimum of $2,000 to invest. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, Roboadvisors are growing at a rapid pace, doubling their assets under management every few Bahrain’smonths.central bank issued directives on Robo-advisory in 2019 as the small Gulf state affirmed its position as the region’s leading digital financial hub.
15mea-finance.com their wealth management businesses, they are facing growing competition from wealth technology platforms that are developing advanced businessto-business (B2B) and business-toconsumer (B2C) digital solutions.
Digital native Once a laggard in the adoption of technology, wealth management is accelerating digitalisation, deploying artificial intelligence (AI), Big Data, robotics and other innovative technologies to enhance client’s experience and trust—which is central to the industry’s relationships.
Commercial Bank of Dubai unveiled its Robo-advisory app CBD Investr in April 2021. The platform offers the bank’s clients access to globally diversified and personalized portfolios of stocks, bonds, and other asset classes using low-cost exchange-traded funds.
The UAE and Saudi Arabia’s regulatory environments are driving the Roboadvisory market growth in the Middle East and Africa region. The regulatory push for open Application Programming Interfaces (APIs) infrastructure across the region is expected to make it easier for wealth managers to deliver consolidated client views of multiple relationships.
A coherent digital transformation plan will give firms a head start in leveraging stronger client relationships, reduced operating costs as well as enhanced risk management and regulatory compliance capabilities. “The changes are helping firms meet their regulatory obligations, boosting the productivity of wealth managers and lifting compressed margins,” said McKinsey.
The current operating environment is making it difficult for wealth managers to deliver the kind of inflation-beating returns that keep clients happy. The industry has entered a comparison phase where HNWIs are keen to shop around and do their own research.
Meanwhile, Saudi Arabia’s Derayah Smart provides retail investors with access to a globally diversified and multi-assetsbased strategy managed by investment specialists. The platform’s Shariahcompliant competitor, Haseed Invest, provides investment opportunities in globally diversified Islamic assets using Exchange-Traded Funds (ETFs) and mutual funds.
Though the typical client in a developed market today is around the age of 65 years
The Abu Dhabi Global Market’s Financial Services Regulatory Authority issued its regulatory framework for digital investment managers operating in the financial hub in 2019—a move that was hailed by Moody’s. The rating agency said that the regulatory framework safeguards systemic stability through a well-regulated environment for fintechs.
“The client experience has been the prompt for the digital transformation journey of wealth management companies,” said Deloitte. The growth of automated wealth managers or Robo-advisors is revolutionising the wealth management industry with unprecedented force.
CBD Investr is competing with Sarwa and FinaMaze in the UAE. Sarwa offers curated portfolios, including conventional, halal and bitcoin offerings while FinaMaze’s AI-powered hybrid Roboadvisory solution is used to identify the natural financial behaviour, risk appetite and goals of each investor.
The home of MENA’s digital transactions afs.com.bh Processing Comprehensive and end to end card processing solutions personalised to your requirements Fintech Future proof digital payment innovations for tomorrow’s customers Merchant acquiring State of the art payment technologies that seamlessly empower potential for businesses Since the outset, AFS has paved the transformation of the region’s payments systems. Combining our MENA experience and international expertise we have developed comprehensive digital payments solutions that consistently surpass our client’s needs. Between our processing, acquiring and fintech verticals, we have empowered financial institutions and businesses and we have energised customers with reimagined digital payments experiences that are faster, better, and more secure
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Deloitte said that an automated onboarding process is a mutually beneficial situation offering speed, efficiency and convenience for the customers and freeing bankers for more value-added tasks. The implementation of an automated customer onboarding process is an essential feature that determines whether or not a financial institution can obtain new customers.
Growth prospects
“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 wealth manager’s role has become even more complex,” said BNP Paribas.
Julius Baer said that there’s an emergence of the next generation of clients—a generation that looks beyond the traditional ways of wealth preservation, especially in the Gulf region. Wealth managers are being confronted by the task of balancing the traditional approach to risk management with the need to respond quickly to the prolonged pandemic that has created massive changes to their operating environment.
COVID-19
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Over the past two years, business ethics have moved to the forefront as metrics to identify how well a company is performing amid growing demands from investors that environmental, social and governance (ESG) issues be factored into their portfolios. The World Economic Forum (WEF) said in a report in January that HNWIs and family wealth are uniquely positioned to leverage private capital to drive growth in the ESG sector by supporting long-term societal goals and Wealthambitions.management is one of the most attractive sectors within the financial services sector, thanks to the business’ greater growth prospects, lower capital requirements and a higher return on equity (ROE) compared to most other retail banking businesses. THE PROLIFERATION OF INVESTMENT PRODUCTS, DIGITALISATION, THE HETEROGENEOUS NATURE OF CLIENT BASES AND THE NEED TO INTEGRATE STRONG SUSTAINABILITY CRITERIA INTO THEIR BUSINESS, THE WEALTH MANAGER’S ROLE HAS EVEN MORE COMPLEX BNP Paribas ACCELERATED DIGITISATION OF PROCESSES AND CLIENT PROPOSITIONS, SHIFT TOWARDS CENTRALISED PORTFOLIO AND RISK MANAGEMENT AMID INCREASING FOCUS ON RESPONSIBLE INVESTING EMPHASIZING THE ROLE OF WEALTH MANAGERS IN SUPPORTING SOCIOECONOMIC ECOSYSTEMS
WHILE
– BlackRock
The Middle East, one of the world’s hotbeds of wealth creation, has seen an acceleration in trends relating to succession planning, alternate investment vehicles, wealth preservation, digitalisation in wealth management and growing interest in sustainable investing.
17mea-finance.com and is comfortable with digital technology, shifting demographics, evolving client behaviours, the rise in new innovative technologies and emerging disruptive competition are all reshaping the industry. Incumbent banks should set their minds on eradicating the pain points that clients encounter when working with wealth managers to maintain a competitive edge and digital onboarding is a huge issue. Industry experts say onboarding a typical HNW client used to take two-thirds of regional firms well over two weeks and the process was not only lengthy but also arduous due to the paperwork involved as most wealth managers were yet to completely digitalisedSimilarly,onboarding.automation, systems integration and interdepartmental collaboration stood at shockingly low levels and unnecessary delays loomed large even for clients with quite simple profiles, while for clients with more complex profiles onboarding is taking as much as six Customermonths.onboarding is the first contact that a new user has with the bank and the process should be intuitive, seamless, responsive and efficient. It is defined as the guidance of customers in the first steps of platform accessibility and a critical step in a customer’s journey with a financial institution as it leaves a long-lasting impression in the clients’ minds about how they perceive a financial institution.
BECOME
Come One, Come All A
t the beginning of 2022, there were six Robo Advisory platforms operating in GCC–CBD Investr, Derayah Smart, FinaMaze, Haseed Invest, NBK Capital SmartWealth, Sarwa –can we expect to see many more coming online in the near future?
SIGNIFICANTLYISINDUSTRYTRILLION-DOLLARAANDGROWING to grow much faster than their “pure” robo-counterparts as investors feel safe, knowing that their money is being managed by a well-established and reputed investment firm or bank. What is your view of digital financial advisory and the role it plays in managing portfolios? Digital technology has taken the financial services industry by storm and continues to drive waves of disruption that have fundamentally changed how financial services, including investments, are provided and consumed. While there is a wide range of technology trends impacting the financial industry, from blockchain to artificial intelligence, I think Robo-advisory solutions will be one of the main drivers of this financial disruption. It is already a trillion-dollar industry and is growing significantly.
Deepak Mehra Head of SolutionsInvestmentatCBD tells
AI & ROBO-ADVISORY
MEA Finance that while already a one trillion-dollar business, Robo advisory is expected to continue growing, especially where backed by established financial institutions, as more consumer segments gain new access to the nowopportunitiesinvestmentitcanprovidethem
IT IS ALREADY
18 Banking and Finance news in the MEA market
The number of Robo Advisory platforms has increased across the GCC since its emergence. However, despite this impressive growth in less than a decade, challenges exist for new entrants, especially for standalone robo-advisors. Robo advisory platforms backed by investment firms or banks are predicted
The High Growth portfolio, which allocates 100% of the investment to equities, has returned over 12% per annum on average over the past ten years. The average annual performance of the four risk profiles from 2011-2020 is Conservative at 4.9%, Balanced at 8.2%, Growth At 11.3%, and High Growth at 12.2%.
Where particularly do Robo Advisors have advantages over human advisors, and vice-versa?
Deepak Mehra, Head of Investment Solutions at CBD
19mea-finance.com
Robo-advisory platforms play a significant role in managing portfolios. The robo-advisors design the portfolios based on the customer’s specific goals, risk appetite and investment time horizon. They are then actively monitored and optimised based on changing market conditions to deliver the best possible performance over the long term. CBD Investr App algorithms have been extensively back tested using real market data over the past ten years and have consistently outperformed market benchmarks over the same period.
Overall, a robo-advisor can be an excellent choice to manage investments, especially if the investor is new to the market and has just started their journey and their needs are simple and straightforward. As investors’ needs become more complex and require detailed expertise, it makes sense to consult a financial advisor to help them optimise the situation and get the best advice.
It is also important to highlight that if you look at past data, even in the bestperforming years, markets crash at some point in time and eventually recover. Through the back tested data, we have empirical evidence that when markets fall, the CBD Investr portfolios tend to fall less and when markets rise, the algorithms try to capitalize and capture the full returns.
What impact has the development of Robo Advisory had on asset management and banking businesses? Robo advisors have democratised the wealth management industry. By providing customers with easy access to globally diversified and personalized portfolios of stocks, bonds and other asset classes at a low investment entry-level, banks are able to attract a large number of new investment customers.
Moreover, robo-advisors provide an easy and simple account opening process, offer constant monitoring and automated rebalancing, and are available 24 hours a day, seven days a week. Customers can access their accounts at any time of the day and view their transactions and balance.
Robo-advisory platforms make investment services available to both wealthy customers and those with smaller investment portfolios. This is achievable because robo-advisors are built with a low-cost framework. Hence, with the emergence of robo-advisors, a new low-budget investor class has emerged, which traditional investment advisors have not previously served.
Can Robo Advisory practically cater for more than just the HNWI and mass affluent sectors of society? Wealth management solutions have traditionally been accessible only to a small segment of consumers. A large majority were unable to receive personalised services or the best riskadjustedAutomationreturns.has significantly changed that paradigm. Robo advisors can offer a highly sophisticated solution at a reasonably low threshold due to a fully digital and straight-through process that does not require manual intervention. The portfolios are optimised to deliver the best possible risk-adjusted returns investing in global markets across asset classes and are suitable for all investors. At CBD, we have many customers across all segments already investing in the app: from high-net-worth private banking customers who invest lumpsums from time to time to young customers who have just started their careers, investing on a regular basis when they receive their salaries. Since the app allows customers to invest and withdraw at their convenience, without any lock-in period or withdrawal penalties, it has made goal-based investing easy and accessible to a wide segment of the market. The best part is that customers can start investing with just $500 and withdraw at any time
ROBO ADVISORS HAVE DEMOCRATISED THE WEALTH MANAGEMENT INDUSTRY
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AI & ROBO-ADVISORY
Mark Chahwan, Co-founder and CEO, Sarwa
Evolution in Action
20 Banking and Finance news in the MEA market
t the beginning of 2022, there were six Robo Advisory platforms operating in GCC– CBD Investr, Derayah Smart, FinaMaze, Haseed Invest, NBK Capital SmartWealth, Sarwa – can we expect to see many more coming online in the near future?
As you know Sarwa was the first company in the region to receive the Innovation Testing License and to launch the robo-advisory service to young professionals back in February 2018. Today, Sarwa is the fastest growing investment platform with more than 100k users that trust us with their financial journey. The future of wealth management in the region is changing rapidly alongside Consumer behavior especially with the new narratives that we have seen post pandemic. You see more and more adoption of online financial services andToday’sproducts.clients are more mindful of fees, but also want to be in control of the options they have. That is why they are looking for apps that offer low cost, ease of use, intuitive interfaces, and investingGenerallyoptions.speaking, with regulatory precedence and ease of business today, I believe you will continue to see more players penetrating the market. However, it is now about consolidation and offering the right services to the right segment. The expanding young generation of MENA offers many opportunities for growth, as long as companies know how to listen to their clients. Sarwa today for example, went from being only a robo-advisor, to becoming a one-stop-money management and investing platform that has hands-off investing, self-directed trading of stocks, ETFs as well as cryptocurrencies with fractional investing, free local transfers, watchlists, daily and weekly news, access to free education articles and
The new financial landscape is pushing banks to digitise faster and Mark Chahwan Co-founder and CEO, Sarwa expects to see more Robo-advisory players entering the market with the younger demographics of the region offering growth opportunities
21mea-finance.com videos, free workshops and many more products to come soon.
A big percentage of the industry was built around commissions with lack of transparency. This new landscape pushed companies to digitise faster, to listen to the market and to be more transparent. Where particularly do Robo Advisors have advantages over human advisors, and vice-versa?
One of the disadvantages of new robo platforms is that you do not have any lock-in periods and exit fees. It is both an advantage and a disadvantage. You can withdraw at any point in time, which can be a bad thing to do if you have not reached your goals. With traditional advisors, you pay exit fees and penalties, which can protect you from yourself sometimes. That said, it does not have to be an either-or answer. It is not about completely removing the human element, but about making it more efficient, and more costRelationshipseffective. building is still important. In today’s world, you still need both, that is why we at Sarwa have a hybrid model – technology to optimise and be more efficient; the human touch because we are human after all, and our clients need to know we are there. Our clients have the support needed from our customer excellence team right in their hands. Ultimately it is about doing what is best for our clients and our community, which is the only way to succeed as a business.
THAT EXTRA MONEY YOU HAVE SITTING IN THE BANK IS LOSING ITS VALUE
What is your view of digital financial advisory and the role it plays in managing portfolios?
The use of smart algorithms and financial technology allowed for the democratisation of investing and made it possible for anyone to start their journey towards long term wealth. It used to be that you needed wealth to create more wealth. Now if you have a steady income, and an emergency fund, you can easily start investing. Sarwa caters to everyone: we have clients with $500 and we have clients with $5,000,000. The important thing is for you to start somewhere to build on that, one step at a time. What impact has the development of Robo Advisory had on asset management and banking businesses?
Massive. Traditional banks and wealth advisors failed to cater to a younger segment that is looking for low cost, convenience and practicality. The young generation has a very high mobile penetration and is looking for practicality and convenience above all. You do not want to go drive somewhere, or take a cab, only to wait for hours to get someone to see you so they can take your money.
Today, young professionals use apps for everything in their day-to-day life. Investing should not be any different. Platforms like Sarwa make it super convenient. It takes a few minutes to answer a few questions, upload a couple of documents, take a selfie and you are all set. Technology can accomplish activities in a few seconds, which otherwise take hours and days, such as flagging anti-money laundering activities, doing the QA for any process you have in place and removing a lot of repetitive work. Before, the overhead and operational costs of traditional advisors was so high.
Robo-advisors generally mix the advantages of low management fees from passive management and the use of technology to lower cost while retaining the benefits of a personalised portfolio that fits the risk tolerance of financial goals of the client. With Robo advisory, youProvidecan: better performance. It removes the human emotion elements of trading that drastically harms the performance of a portfolio and decreases returns over the long run. Investments tend to outperform their investors. One of the reasons being investors tend to panic in downturns, and sell at low prices, and get greedy in upward markets, and buy at high prices. When it should be the opposite. Provide a faster service, at the client’s convenience: They can sign up from the comfort of their couch and their phone, no time wasted on roads, and paperwork. Cater to a wider customer base, at a lower cost. You also provide a better experience: clients have access to their own dashboard anytime.
Let us start with the basics. A big percentage of the population in the region still has their money sitting in savings accounts. While a savings account is good to have as an emergency fund, it is important to also put money to work for you and hedge against inflation. That extra money you have sitting in the bank is losing its Financialvalue.advisors are professionals that help you make decisions about what you should do with your money and how to invest it. In today’s world, it is easy to open an account online and put your money to work for you within minutes. With apps like Sarwa, you also have all the information and the options in one place - you can access free education, through articles on the dos and don’ts, videos, free webinars, and workshop, all free of jargon. Digital financial advisory made smart investing easy, accessible and affordable. Can Robo Advisory practically cater for more than just the HNWI and mass affluent sectors of society?
IBM AI powered autonomous lab
22 Banking and Finance news in the MEA market
Anthony Butler Chief Technology Officer, IBM Middle East and Africa provides a clear assessment of how Robo Advisory could bring more investors into the market, even benefiting human investment professionals and creating opportunities benefiting all players
In general, digital financial advisory can play multiple roles. Firstly, they can democratise access to financial advice for people who might otherwise not have access to a financial advisor or be able to afford their services.
What is your view of digital financial advisory and the role it plays in managing portfolios?
The first robo-advisors appeared in 2010 and the market has grown rapidly in will also see increasingly sophisticated use of artificial intelligence and machine learning as both these technologies and their applications to the financial world continue to evolve. The GCC will not be an exception and I believe that, in particular, the demographics of the Gulf, with its youthful digitally-native population, make it well suited to the adoption of robo advisory technologies.
recent years. We are seeing new products enter the market that are increasingly sophisticated or targeting different segments of the market. For example, robo-advisors targeting people interested in Islamic finance or ESG-focused investing are an example of how these platforms will segment the market; we
A ARelationshipSymbiotictthebeginningof2022,severalnewRoboAdvisoryplatformswerelaunchedinGCC,canweexpecttoseemanymorecomingonlineinthenearfuture?
Someone who wants to invest passively today could simply install an app, set some broad investing objectives (such as growth vs income), some risk parameters, and then let the application manage. They don’t need to be able to read a balance sheet or perform technical analysis, yet they are able to invest in a way that is better informed than would be possible normally.
AI & ROBO-ADVISORY
Anthony Butler, Chief Technology Officer, IBM Middle East and Africa
What impact has the development of Robo Advisory had on asset management and banking businesses?
Thirdly, these technologies make possible a high degree of automation. A person could, for example, select an investment strategy from a catalogue, crowdsource the strategy, or create their own and have the platform automatically make investment decisions – within defined parameters – based on this strategy. The speed, ability to operate 24x7, and ability to ingest vast amounts of data to form decisions can put these platforms at an advantage to human investors who are time-constrained.
Secondly, these types of technologies can use artificial intelligence to provide investors with a broader and often richer set of insights than would be available if they were to attempt to do this themselves. For example, whilst analysis of company financial performance or share trading histories are widely available, there are an emerging class of insights based on alternative data sources that can help inform investment decisions but are very difficult for ordinary investors to process or get access to. For example, we have been working with different entities in the region to explore how weather data can influence company performance.
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advisors are, unlike robo advisors, better able to understand and build strategies that are far more bespoke and take into account factors that a robo advisor would find it difficult to accommodate. For example, a person’s family situation, complex tax scenarios, or ethical and other constraints on the types of fund or equity that they will invest in. As robo advisors will typically address a broad market, there are often products, strategies or opportunities that only a human advisor would be aware of or be able to discern. That said, this level of advisory typically comes at a higher price to robo-advisors.
There is an entire section of the market that was not able – for financial or other reasons – to get access to financial advisors and robo-advisors have played an important role in addressing that part of the Whilstmarket.there are some pure-play robo advisory platforms, I am also seeing that hybrid approaches are common and offer a richer experience. For example, an investor might choose trading strategies of a set of humandefined offerings and the robo-advisor will then just execute or, as is often the case, the investor will still consult and engage with human advisors in addition to using a robo-advisor to trade within certain narrow parameters. I am also seeing that there is a continuum of maturity where people may start with robo-advisors as their entry point into investing and then, as they become more sophisticated, their need for more bespoke advisory services increases. Given they are addressing a market that is often not served by banks or asset managers, it could be argued that deployment of robo-advisors can actually lead to growth in the classic part of the business as a subset of these users graduate to more sophisticated investment products. In this case, rather than replacing the role of financial advisors, robo-advisors could be a useful customer acquisition strategy for these higher value services. Where particularly do Robo Advisors have advantages over human advisors, and vice-versa? Robo Advisors can monitor multiple markets 24x7, act immediately, and are not swayed by the normal human emotions that can sometimes cloud our judgement. They are digitally-native and therefore can be accessed and used anywhere in the world and at any time. Their trading or investment heuristics are often pre-defined, based on some objective function, or based on a catalogue of trading strategies that a user can choose from. This makes them a much simpler and lower cost way for someone with no investment experience to enter theHumanmarket.
THEY DON’T NEED TO BE ABLE TO READ A BALANCE SHEET OR PERFORM TECHNICAL ANALYSIS, YET THEY ARE ABLE TO INVEST IN A WAY THAT IS BETTER INFORMED THAN WOULD BE POSSIBLE NORMALLY
quity capital markets in the Middle East are still some of the best performing in the world this year as the market upheavals that followed the start of the war in Ukraine and hawkish central banks’ policies to tame the runaway inflation are keeping equity investors vigilant and defensive. The Middle East, specifically the oil-producing countries, is benefiting from high oil prices, which has translated into regional investors having additional capital to “Middledeploy.Eastern countries that are petrochemical exporters, have largely
24 Banking and Finance news in the MEA market
Middle East equity markets, a success story
There are signs of renewed optimism in 2022 and some degree of investor confidence appears to be returning which is being reflected by the number of companies that plan to go public in the last half of the year E
EQUITY CAPITAL MARKETS
Booming IPO market Dubai supermarket operator Union Coop’s public offering in July is the latest in a string
outperformed Emerging Markets and global peers since February 2021, contiguous with the rise in oil prices and the spill through to the economy,” said Anita Krishna Gupta, the Head of Equity Strategy, CIO Office, Wealth Management EmiratesMENA’sNBD.initial public offering (IPO) activity continues to defy global trends and remains a bright spot in a challenging market. The demand for share sales remains at record highs and it has propped up equity benchmarks in the UAE and Saudi Arabia after GCC equity markets outperformed their global peers with a yearly return of 34.9% in 2021 for the MSCI GCC Index. There are signs of renewed optimism in 2022 and analysts said that some degree of investor confidence appears to be returning which is being reflected in the number of companies that plans to go public in the last half of the year. “The Middle East has been the busiest region within Europe, the Middle East and Africa (EMEA) in 2022 and that will attract more interest from international banks wanting to get involved,” Samer Deghaili, Head of Capital Markets for MENA and Turkey at HSBC Bank Middle East told S&PTheGlobal.booming MENA IPO market has seen a surge in reverse roadshows for investors as top Wall Street banks including Citigroup and JPMorgan Chase have brought their fund managers into the region to meet with several companies that are considering listing in the near term.
– Anita Krishna Gupta, the Head of Equity Strategy, CIO Office, Wealth Management Emirates NBD
Growing competition
25mea-finance.com of blockbuster listings in the Middle East as the ongoing war in Ukraine and future interest rate hikes are forcing companies to shelve their IPO plans globally. E&Y said that 630 listings raised $95.4 billion in proceeds during the first half of the year globally, which is a significant 46% drop in the number of IPOs and 58% in the proceeds raised as compared to the corresponding period in 2021. A record 24 listings in the MENA region raised $13.5 billion in the first six months of 2022, with Dubai Electricity & Water Authority’s (DEWA) public offering becoming the biggest IPO in the EMEA region since 2019. The IPO is also the largest to date in the UAE. The Dubai state-run utility firm raised $6.1 billion and its stock surged 20% on its trading debut on the Dubai Financial Market (DFM). DEWA’s shares closed at $0.70 (AED 2.60) apiece on 26 August 2022, which is higher than its IPO price of $0.67 (AED 2.48)
S&P Global said that the glut of IPOs is attracting growing interest from global investment banks. Global investment banks including Bank of America are reportedly sending their fund managers
Meanwhile, the Saudi Exchange’s parallel market, Nomu, received seven direct listings in H1 2022. The secondary market received four direct listings in Q1 2022 with no funds raised through a public offering but with shares admitted to trading. However, Nomu raised a combined $40.8 million from the IPOs of the Arabian Food & Dairy Factories Company, Ladun Investment Company and Amwj International Company in the second quarter of the year. Rudy Saadi, Director, Equity Capital Markets, Citi, said, “Given the number of IPOs recently priced, it is only a matter of time before we start seeing more activity in the secondary market i.e., Accelerated Equity Offerings, Fully Marketed Offerings and Exchangeable Bonds issuance.”
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THE MENA REGION WITNESSED A 500% YEAR-ON-YEAR INCREASE IN THE NUMBER OF COMPANIES LISTING DURING H1 2022 WITH 24 IPOS RAISING PROCEEDS OF $13.5 BILLION— AN INCREASE OF 2,952% IN VALUE WHEN COMPARED TO THE SAME PERIOD IN 2021 – E&Y
Kuwait’s Ali Alghanim and Sons Automotive Company raised $321 million (KWD 98.96 million) through a private placement in June before listing on Boursa Kuwait in what is the first share sale by a family-owned business in seven years. Saudi Arabia leads in MENA listing volume with five IPOs in the first half of the year. The Gulf state’s property developer Retal Urban Development is the latest company to debut on the Saudi Exchange following its $384 million (SAR 1.44 billion) in May. Retal, which offered 12 million shares or 30% of its issued share capital, has a market capitalisation of $1.3 billion (SAR 5 billion) as of 26 August 2022. “MENA IPO activity continues to defy global trends and remains a bright spot in a challenging market. The number and value of deals in the second quarter of this year confirms that investors still have an appetite for growth, yield and diversification,” said Brad Watson, EY MENA Strategy and Transactions Leader.
The Abu Dhabi bourse rebranded its parallel market into the Growth Market in April 2022 and Invictus Investment Company became the thirteenth company to be listed on the exchange.
MIDDLE EASTERN COUNTRIES THAT ARE PETROCHEMICAL EXPORTERS, HAVE LARGELY OUTPERFORMED EMERGING MARKET AND GLOBAL PEERS SINCE 2021, WITH THE RISE IN OIL PRICES AND THE SPILL THROUGH TO THE ECONOMY
“The MENA region witnessed a 500% year-on-year increase in the number of companies listing during H1 2022 with 24 IPOs raising proceeds of $13.5 billion— an increase of 2,952% in value when compared to the same period in 2021,” saidBorougeE&Y. is also the latest listing on the Abu Dhabi Securities Exchange (ADX). The petrochemical firm’s shares soared more than 20% on its trading trade on 3 June 2022 to $0.82 (AED 3.00). Borouge’s stock is trading higher than the company’s listing price of $0.67 (AED 2.45) at $0.82 (AED 3.04) per share as of 26 August 2022.
The privatisation programs in the Gulf states together with the rules and guidelines for equity capital markets issuance especially for IPOs are driving an increase in public offerings that is heightening competition among local and international banks for advisory mandates. The IPO boom in the Middle East is also putting pressure on the fees these institutions can charge.
The heightened competition for advisory mandates is hurting the fees banks can command for their services in a region where underwriting fees tend to be lower than in other markets such as the US.
The Deputy Ruler of Dubai, Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, said last November that his government approved the establishment of a market-maker fund worth up to $544.5 million (AED 2 billion) and a $272.2 million (AED 1 billion) fund to encourage domestic listings. Abu Dhabi’s Supreme Council for Financial and Economic Affairs also launched a $1.4 billion (AED 5 billion) IPO fund in October 2021 to incentivise private companies to list on the local “Despiteexchange.concern from investors regarding the risk of a global recession, there remains a healthy pipeline of IPO candidates from Saudi Arabia and the UAE, as well as quieter IPO markets such as Oman, Qatar and Kuwait, looking to come to market in the future,” said EY.
Citigroup, HSBC and Emirates NBD shared around $97 million (AED 357 million) in fees for working on DEWA’s landmark public offering, Bloomberg reported in April.
Oman’s OQ is reportedly considering an initial public offering (IPO) of its gas pipeline network unit, and the stateowned energy firm has invited local and international banks to pitch for roles in the planned listing. With a dozen of IPOs in the pipeline, it remains to be seen whether the Middle East equity indexes will remain among the world’s best performers after the last two listings in Dubai, Union Coop and property firm TECOM, tumbled on trading debut.
THE NUMBER AND VALUE OF DEALS IN THE SECOND QUARTER OF THIS YEAR CONFIRMS THAT INVESTORS STILL HAVE AN APPETITE FOR GROWTH, YIELD AND DIVERSIFICATION
26 Banking and Finance news in the MEA market to the Middle East to meet a range of companies from those that are preparing to go public to others that may consider doing so in the near term.
The pipeline is encouraging with at least 10 IPOs expected to come to the market in the next 12 months, in various sectors, on the condition they all receive regulatory approval on time,” said Saadi.
Meanwhile, global equity underwriting fees are expected to plunge by more than 50% this year as high market volatility due to rising inflation threatens to plunge the global economy into a recession. Analytics firm Coalition Greenwich said that investor concerns about soaring inflation and tighter monetary policy are weighing on global listing activity while the market volatility that was triggered by the war in Ukraine in February extinguished any remaining risk appetite, putting IPOs around the world in a holding pattern until sentiment improves. IPO outlook Globally, the heightened volatility caused by the war in Ukraine and macroeconomic factors, declining valuation and poor postIPO share price performance have led to a significant drop in listing activity from a record year in Meanwhile,2021.thesituation is different in the Middle East where state-backed entities are stepping up their efforts to boost domestic equity markets while supporting regional governments’ efforts to diversify their economies away from heavy reliance on oil revenues. “There was about $15 billion of IPO issuance in the Middle East in the first half of the year, an impressive number.
The UAE stock markets are bracing for yet another year of record listings including Emirates Global Aluminium, Empower and the Dubai road toll company ‘Salik.’ The IPOs of DEWA and TECOM Group in H1 2022 are part of the Dubai Government’s broader strategy to list 10 state-owned companies to boost trading volumes of the local bourse to $816.8 billion (AED 3 trillion) and catch up with ADX and the Saudi Exchange amid a climate economic optimism. Stock markets in the Middle East are also offering sweeteners including flexibility on the minimum stake size required for share sales and promises to reduce or forgo listing fees to boost listings.
EQUITY CAPITAL MARKETS
– Brad Watson, EY MENA Strategy and Transactions Leader
THERE WAS ABOUT $15 BILLION OF IPO ISSUANCE IN THE MIDDLE EAST IN THE FIRST HALF OF THE YEAR, AN IMPRESSIVE NUMBER. THE PIPELINE IS ENCOURAGING WITH AT LEAST 10 IPOS EXPECTED TO COME TO THE MARKET IN THE NEXT 12 MONTHS, IN VARIOUS SECTORS, ON THE CONDITION THEY ALL RECEIVE REGULATORY APPROVAL ON TIME
– Rudy Saadi, Director, Equity Capital Markets, Citi
ANDCONVERGENCEIDEATIONINNOVATION 14 September 202214 September 202214 September 2022 REAL-TIME PAYMENTS: A ROUNDTABLEA ROUNDTABLEA ROUNDTABLEDISCUSSIONDISCUSSIONDISCUSSION Supported by: Mandarin Oriental Hotel, DubaiMandarin Oriental Hotel, DubaiMandarin Oriental Hotel, Dubai Sponsored by:
Despite heightened volatility in the equity markets this year, the Middle East has seen growth in investor confidence.
On top of that, the quality of the assets that came to the market is solid, liquidity is much higher and most of IPOs have traded well in the aftermarket when global issuance was almost muted. There have been notable IPO’s in the Middle East in the first half of 2022, how is deal pipeline looking like for the coming year or so?
Yes, there was about $15bn of IPO issuance in the Middle East in H1-22, Market–Leading Market CAPITAL MARKETS
28 Banking and Finance news in the MEA market
Why? There is no doubt that we are running through a global inflationary and heightened volatility environment but inflation in the GCC remains well below Emerging Markets, Europe and the US, so the state of the economies in the Middle East is relatively healthy compared to the rest of the world. Investors are looking at core fundamentals such as the USD currency peg, the fiscal surplus, the higher oil price, the young population and the overall reforms which provide fiscal support and investor confidence especially in the UAE and Saudi Arabia.
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EQUITY
Rudy Saadi, Director, Equity Capital Markets, Citi
Rudy Saadi Head of MENA Equity Capital Markets at Citi tells MEA Finance that with high quality assets on the market, strong IPO activity backed by an encouraging pipeline and a growing secondary market, the regional equity capital markets have become a beacon for regional and international investors
MENA is a bright spot for international and regional investors. The region is surely not immune, we have seen a correction in GCC markets earlier in the summer due to the global risk-off sentiment and the interest rates hikes, however the recent rebound underlines the healthy status of the largest Middle Eastern economies compared to other markets. Foreign inflows towards the GCC in 2022 YTD have reached new highs in Saudi, UAE, Qatar and Kuwait and in some instances surpassing the 2021 level which was a solid year for the Middle East.
29mea-finance.com an impressive number. The pipeline is encouraging with at least 10 IPOs expected to come to the market in the next 12 months, in various sectors, on the condition they all receive regulatory approval on time. In fact, the queue is much longer given the privatisation programme in parts of the region, regulators are rightfully cautious on not crowding the market to avoid IPOs launching in the same window, so some IPOs scheduled for H2-22 could launch in Q1 or Q2 of next year. If market fundamentals remain supportive without any macro or geopolitical shocks in the region, the Middle East pipeline will hold.
Is the regions’ current success in the Equity Capital Markets here for the long-term? Absolutely. Despite all the recent activity and the increase in FDI, the MENA region remains well underinvested by international investors. The foreign ownership in Saudi Arabia is gradually increasing given the interest from global investors however this remains below 10%, Dubai and Abu Dhabi are slightly above that level, but this is considered low compared to other Emerging Markets and well below South Africa for example.
Some public companies in the region have already announced the increase or removal of the foreign ownership cap which should pave the way for more ECM activity. In addition to that, the GCC governments have done an excellent job in promoting their local exchanges, this will continue to support the pipeline and IPO activity in the region. I think the next step is for private companies which are not government linked to come to the market which will support the pipeline in the long-term. We have seen several international investors opening offices in the Middle East and moving portfolio managers or analysts to the region, some investors have even established dedicated MENA funds given the increased focus towards the region. Assuming no global macro shocks that directly impacts the Middle East, the ECM activity is here for the long-term, perhaps at a slower pace depending on market conditions and who is ready to go public.
Do you expect to see growth in secondary market activity in the region?
MENA IS A BRIGHT SPOT FOR INTERNATIONAL AND
How do you judge the underlying fundamentals of the region in terms of the markets?
Credit to the regulators and the local exchanges, the rules and guidelines for ECM issuance especially for IPOs have been enhanced facilitating the higher activity. Given the number of IPOs recently priced, it is only a matter of time before we start seeing more activity in the secondary market i.e., Accelerated Equity Offerings, Fully Marketed Offerings, Exchangeable Bonds issuance etc. For example, ADNOC $1.6bn Combined offering into ADNOC Distribution in May 2021 (Accelerated Equity Offering combined with an Exchangeable Bond) was the first ever combined offering in the GCC region. STC’s $3.2bn Fully Marketed Offering in December of last year was also the first in the region, paving the way for similar offerings in the future. GCC investors showed an understanding of such issuances and participated in size. Now to see sustainable growth in the secondary market with similar transactions, we require a clear set of guidelines from GCC regulators allowing all types of secondary offerings, including how we can include Retail investors in such deals, whether filing a prospectus is always required, how much we can offer in primary issuance if needed, the rules around setting a price range, what is the maximum discount we can offer, how many investors we can wall-cross etc. We tend to recommend the ideal execution model and take verbal approval from regulators but what we require is a clear set of guidelines outlining the rules around secondary issuances which should open the door for issuers and/or shareholders to regularly come to the market when they need to raise capital. Once we have a set of successful precedents, the activity in the secondary market will become more sustainable.
NUMBER OF IPOs RECENTLY PRICED, IT IS ONLY A MATTER OF TIME BEFORE WE START SEEING MORE ACTIVITY IN THE SECONDARY MARKET
INVESTORSREGIONALGIVENTHE
The region’s markets are in a good place at this time says Arjun Mittal Founder and CIO, Abbey Road Investment Group, reflecting good fundamentals with many reasons that this success will continue
Arjun Mittal, Founder and CIO, Abbey Road Investment Group
30 Banking and Finance news in the MEA market
Why?
Despite heightened volatility in the equity markets this year, the Middle East has seen growth in investor confidence.
I would assign the growth in investor confidence this year to three broad themes. Firstly, the region has been a beneficiary of rising energy prices, rebounding tourism and generally excellent covid management leading to an influx of capital, liquidity and talented labour. This has helped key sectors like energy, hospitality, banks and real estate to post good results and importantly point to a positive outlook going forward. This is in sharp contrast to other parts of the world where companies and governments face stern Secondly,challenges.regional equity markets did not see valuations reach the same euphoric levels witnessed in the USA and other markets. This meant they were less susceptible to a large correction or bouts of irrational investor panic. Even after the recent increase in regional indices, price-to-earnings ratios, as an example, are still showing reasonable levels of 10-15x, versus 20-25x for USFinally,indices.the Middle East has also seen some excellent IPOs in recent times - year to date approx. $13bn has been raised – and there remains a healthy pipeline of listings
EQUITY CAPITAL
Right Time, Right Place to come. This has helped to retain regional investor confidence and also bring in new international investors. We find this all the more impressive considering it has generally been a tough year for equity markets and IPOs around the world. How do you judge the underlying fundamentals of the region in terms of the markets? Markets tend to be a good reflection of the underlying economic fundamentals, and I don’t believe the Middle East is any MARKETS
31mea-finance.com different. The region currently has found a good mix of economic growth, stability of policies, strong domestic investment programs and an influx of people andAnothercapital. satisfying outcome so far in 2022 has been how regional economies have absorbed the pressure of higher US interest rates. On previous occasions, as US interest rates move higher, local rates tend to also move higher in tandem and this leads to a squeeze on liquidity and economic activity. But this time round regional economies have managed to keep liquidity plentiful and economic activity on track. There are many reasons for this, but a key factor is definitely the proactive measures taken by regional governments to manage covid and keeping their economies open and functioning, without compromising safety, compared to other parts of the markets are reflecting the sounder footing that the region finds itself on currently.
THERE
Key European cities like Paris, Madrid, Berlin and London along with growth centres in the USA (Texas, Florida, North Carolina for e.g.) have been popular amongst investors looking for real estate investments. Diversified real estate funds issued by prominent financial houses have also scooped up funds from regional investors. For investors with longer term horizons (3+ years), we are seeing fresh investments into blue chip equity companies like Microsoft, Alphabet, Berkshire Hathaway etc. Hindsight is often a destructive tool, but history does suggest buying global leaders after they have dropped 20% in price is generally a good recipe to generate future returns. In addition, investors are also looking for opportunities in private markets, investing in companies with upbeat outlooks and new technologies or products. This type of alternative investment, if done well, has shown that it can generate excellent returns over time. The USA remains a prime destination for private markets, but we are also seeing investor interest in Europe, India and parts of Interestingly,Africa. the region’s mix of stable exchange rates (for USD denominated investors) and pro-growth economic policies is a plus point for any international investor looking to diversify from their home market. This, combined with the relatively upbeat sentiment in the Middle East currently, is also encouraging investors to bring back some capital, whether to expand their business or for fresh investments. This is complimented by a whole tranche of new investors in the region who have moved for the easeof-business and better lifestyle on offer and are looking to deploy capital into regional opportunities. So, we are seeing GCC and Middle East investors taking advantage of international and regional trends to find the best investments that match their return and liquidity requirements. ARE LOTS OF REASONS TO BE CONFIDENT THAT THE CURRENT SUCCESS CAN CONTINUE
Is the region’s current success in the Equity Capital Markets here for the long-term?
There are lots of reasons to be confident that the current success can continue. I am not saying every year will post positive gains. But I do believe the template of reinvesting oil & gas dollars back into the economy, in hard and soft infrastructure will boost productivity, and act as magnet for companies from all over the world to establish operations in the region. This, in turn, leads to an upskilling of the population which naturally drives consumption and further investment from the private sector. Equity capital markets will be a natural beneficiary of this virtuous cycle of investment andAtconsumption.amoremicro level, the trend of government-related companies and successful regional business houses to IPO on domestic exchanges is also a positive long-term development for equity capital markets. Any move to improve the diversification and bench strength of domestic exchanges will reinforce the attraction for investors, hopefully creating another virtuous cycle of capital inflow and opportunity.
How are GCC and Middle Eastbased investors with assets outside the region responding to the current uncertainties of today’s world? Every investor is different, with varying return and liquidity requirements. However, at an aggregated level, most investors appreciate the value of diversification. And so, this means they continue to look both at regional and internationalInternationally,opportunities.assets like fixed income and prime real estate have traditionally taken up a good share of an investor’s wallet. And we continue to see funds flow into these areas, which tend to be a ‘safer’ place to put money in times of economic uncertainty.
Equityworld.capital
S ince Greenstone’s Dubai launch in 2011, how has the asset management market evolved in the UAE and the GCC? We founded Greenstone to develop the GCC’s first institutional-grade platform between leading, best-of-breed global fund managers and GCC investors, including Sovereign Wealth Funds (“SWFs”), institutional investors, and family offices across the UAE, Saudi Arabia, Kuwait, Oman, and Qatar.
Greenstone’s launch coincided with the end of the Global Financial Crisis (“GFC”). Prior to the GFC, not unlike their counterparts globally, many GCC investment organisations in the region were not as discriminating in their fund manager selection and due diligence processes.
During this period, the GCC investment community grew substantially in assets. For example, GCC SWFs now have over $3.2 trillion of assets, accounting for one-third of global SWF assets from this sector and four of the world’s top ten SWFs now originate from the GCC. This rapid increase in assets and improved levels of investor sophistication has made the GCC even more popular with U.S., European, and Asian fund managers looking to diversify their investor base. As such, we have seen GCC investors evolve to become more dynamic and globally integrated, building assets with an optimistic future in focus. This
However, over the past decade, there has been a clear movement-to-quality by GCC investors, initially to fund managers with a known brand and then, as quickly as practicable, to the establishment and implementation of thorough investment strategies and processes, including the formation, formalisation and strengthening of internal investment committees enforcing such processes. These changes have enabled GCC investors to be more confident in allocating to a large swath of best-of-breed fund managers (even to those without a globally recognised brand) in various asset classes around the world.
Invested in the Region
32 Banking and Finance news in the MEA market
COVER INTERVIEW
Since their launch, Alex Gemici Chairman & CEO of Greenstone Equity Partners has witnessed growing regional demand for quality and increased investor sophistication, but notes that in the mini renaissance we are experiencing, attention must be given to regulatory compliance
ForTexample:heGCCis benefiting from one of the largest influxes of HNWIs in its history.
institutional investors, and family offices re-allocate capital globally to play a meaningful role across strategies, sectors and geographies which, in turn, bring capital proceeds, new technologies, talent, and business innovations to the region to be reinvested locally and globally.
Is regulatory and compliant capital raising in the region growing in line with other global markets?
Yes, and we strongly believe that foreign fund managers who raise capital from investors in the GCC should take heed of the fast-paced changes to the regulatory environment in the GCC. Over the last 10 years, an everincreasing number of foreign private
R elatively high oil prices have increased cash flow to GCC countries, erasing budget deficits from previous years, and providing capital surpluses for governments and their SWFs.
Alex Gemici, Chairman & CEO at Greenstone Equity Partners
33mea-finance.com includes a real push towards technology investments as well as investments in innovation in alternative asset classes such as private equity, real estate, and private debt. How much has the market changed over the past three turbulent years?
Most importantly, we see a maturing virtuous cycle in the GCC where SWFs, asset managers have been marketing their products to investors in the GCC, dramatically increasing the need for regulatory oversight similar in maturity and complexity to those in the U.S. and Europe. Thus, local regulatory authorities have instituted many new and restrictive guidelines and have clarified the applicability of existing regulations.
Over the past three years, global markets have dealt with unprecedentedly timecompressed cycles. We have endured six major cycles over the last 30 months which historically would occur over a tenyear100period:-day stock market crash and recovery (Feb-Jun 2020); 651-day bull market (Mar 2020-Jan 2022) 164-day bear market (Jan 2022-Jun 2022) tech boom (Apr 2020-Dec 2021) tech bust (Jan-Jul 2021) fir st real economic inflation in 40 years from 0.1% in May 2020 to 8.5% in July 2022, At the same time, from an investment capital standpoint, we believe the GCC is experiencing a mini renaissance which is making this region even more important to asset managers on a global scale.
In May 2021, a change to the IFR caused a substantial change to the process for the registration of foreign funds and the type of locally licensed entities that can register foreign funds. For fund managers seeking capital from GCC investors, it is imperative to comply with local regulations to maintain an unimpaired investment practice and ensure healthy capital markets.
THE GCC IS BENEFITING FROM ONE OF THE LARGEST INFLUXES OF HNWI’s IN ITS HISTORY
Local governments continue to inno vate and invest impactfully in global ecosystems (e.g., Dubai Expo 2020, the Qatar World Cup, LIV Golf, NEOM, etc.) creating the feedback loop of capital inflow into the region. This local renaissance, along with forward-thinking flexible policies to support entrepreneurs and corporate expansion, is creating numerous business opportunities and jobs, and have attracted a growing number of professionals and their families to the GCC.
For example, in Saudi Arabia, the Rules on the Offering of Securities and Continuing Obligations (“ROSCO”) and Investment Fund Regulations (“IFR”) require all foreign securities sales (including alternative fund offerings) to be registered with Saudi Arabia Capital Market Authority and offered only through a locally licensed entity.
You have recently released y our inaugural annual survey of GCCbased Private Capital Investors. What prompted Greenstone to embark on this exercise? After building relationships and gaining the trust of a large number of institutional investors and family offices in the GCC, we believe we are uniquely positioned to be able to generate meaningful and statistically reliable data and sentiment from the region. We are very pleased with the outcome of our first survey which received 110 significant responses from investment organisations spanning the GCC’s SWFs, institutional investors and family offices. While there are substantial research data and statistics available on the preferences and market sentiment of U.S. or European investors, there has been minimal reliable comparable research available on GCC investors. Due to the success of this inaugural survey, we have decided to conduct our survey and publish results annually going forward. though Greenstone only raises capital from five countries in the GCC. We will continue to evolve and innovate to enable our investors to allocate to leading funds and fund managers around the world.
GCC Regulatory Compliance Program
The UAE and KSA are pouring a tremendous amount of innovation and thoughtfulness into programs to build up local economies through the import of global talent. As a homegrown GCC firm, Greenstone benefits from access to these programs and is focused on continuing to attract the best and brightest talent globally.
Globally Sourced Talent
Greenstone is focused on four areas of growth that are deeply aligned with the important trends we are seeing in the GCC region:
Institutional-grade Fund Placement
The investment organisations of GCC SWFs, institutional investors and family offices are continually evolving and investing across an ever-widening spectrum of asset classes, geographies and sectors. In lockstep with our GCC investors, Greenstone grows and adapts our GCC investor coverage to build on our longstanding investor relationships and fit the needs of each investment organisation we cover. Through careful product selection, fund manager due diligence and iterative processes which match the market intelligence received from our thousands of one-to-one conversations each year with GCC investment organisations, Greenstone has developed a one-of-itskind fund placement model aligned to meet investors’ changing demand. As a result, we have been recognised annually since 2018 as one of the top performing private capital placement firms in the world, even by smaller GCC investors. We expect to launch our platform in early 2023.
34 Banking and Finance news in the MEA market Generally, in Greenstone’s experience, foreign fund managers (and to some extent their compliance counsel) do not understand the GCC regulatory environment. Based on thousands of direct communications Greenstone has with foreign fund managers every year, we estimate that more than 90% of foreign funds continue to be marketed to GCC investors in a non-compliant manner.
COVER INTERVIEW
To minimise the complexities and costs associated with a fund manager developing and maintaining its own locally licensed entities in the various GCC countries, Greenstone’s regulatory compliance platform enables foreign fund managers to work with locally licensed entities to compliantly offer funds to GCC investors within the boundaries of the regulations.
Currently, Greenstone boasts a team of over 20 nationalities to support our growing business.
How do you see the region changing, and how is Greenstone growing with it?
We believe the GCC regulatory environment will continue to mature to ultimately model the uncompromising regulatory atmospheres of the U.S. and Europe. To meet the growing demand of foreign fund managers who wish to raise capital for their funds from GCC investors but lack the local licensing to do so, Greenstone’s GCC Regulatory Compliance Program offers a simple and cost-effective platform of locally licensed entities through which fund managers may outsource their GCC regulatory compliance.
Expanding HNWI Access to Alternative Assets Globally there is a natural expansion of alternative investment funds to a larger investor universe by reducing the minimum investment size into funds. We at Greenstone feel that an increase in accessibility to these investment funds which target high returns is socially responsible because it opens investment opportunities to high-networth individuals which have traditionally only been available to institutional investors. We have been working for over a year on building a platform of top private equity and other alternative funds (which are currently only available to institutional investors), structured in a manner where they are accessible WE STRONGLY BELIEVE THAT FOREIGN FUND MANAGERS WHO RAISE CAPITAL FROM INVESTORS IN THE GCC SHOULD TAKE HEED OF THE FAST-PACED CHANGES TO THE REGULATORY ENVIRONMENT IN THE GCC
35mea-finance.com 68 The GCC is home to one-third of global SWF assets Respondents favor investing in North America, closely followed by Europe and the UK of respondents prefer to76 Private Equity -14% Real Estate -5% Infrastructure -5% Venture Capital -6% Private Debt -6% Hedge Funds -7% Natural Resources -10% % of respondents have 34% to 100% of their current portfolio allocated to alternatives 2022 GREENSTONEHIGHLIGHTSGCCINVESTORINSIGHTS Over the next 12 months, respondents plan to increase allocations across all alternative strategies except Natural ResourcesTo discuss this report, please marketing@gsequity.comcontact:
NEOBANKING
igital banking in the Middle East region is primed for growth driven by a surge in demand for online and mobile alternatives as well as non-traditional entrants that are shaking up the financial services sector. Banking has traditionally been a conservative industry that enjoyed relatively high barriers to entry due to regulations that restrained access for non-bank competitors but new innovative technologies such as the cloud, artificial intelligence (AI) and machine learning (ML) have significantly lowered entry barriers.
Meanwhile, financial regulators in the region are creating unique opportunities for both traditional banks and new entrants thanks to increased license allocations and developing set standards for a new generation of banking. Though the UAE has more than 50 commercial banks operating in the country, the Gulf state’s central bank established a
The outbreak of the pandemic more than two years ago brought about more than a decade worth of changes in the way banks do business in just a few months. KPMG said that with 80% of revenue growth predicted to come from digital offerings and operations over the next three years, financial services providers should continue transforming their operating models and investing in key enablers such as integrated cloud platforms, agile ways of working, intelligent automation, AI, blockchain and advanced data and analytics.
36 Banking and Finance news in the MEA market
Millions of bank customers in the Middle East have now embraced fully integrated mobile banking experiences, using smartphones, tablets and wearables to do everything from e-commerce products and services to opening new accounts and making payments.
dedicated FinTech office in 2020, paving the way for new native digital banks.
The evolution of digital banking
D
Digital native banks Digital banking is swiftly changing the field of play where incumbents are facing increasing competition from neobanks and challenger banks who are billing on customer experience as their point of sale.
The ongoing transformation in the Middle East financial services market is partly being driven by tech-savvy customers and regulatory initiatives such as regulatory PwC said that digital banks have been able to differentiate themselves from traditional banks by providing personalised products to customers along with superior customer service.
Digital banking is swiftly changing the field of play where incumbents are facing increasing competition from neobanks and challenger banks who are billing on customer experience as their point of sale
37mea-finance.com sandbox and open banking—which are creating an enabling environment. “The UAE has a strong regulatory foundation for the launch and operations of digital-only banks,” saidYAP,KPMG.the
Zand Bank, the Gulf state’s first Shariahcompliant neobank is expected to open its doors for business soon after its shareholders acquired the majority of shares in Dubai Bank from Emirates NBD.
– Simon-Kucher & Partners 400 Neobanks globally serving 1Billion clients
“Digital channels are where customers conduct most of their basic financial transactions and should be at the center of every bank’s distribution strategy,” said IBM.
The bank, which counts Franklin Templeton, Aditya Birla Group and co-founder and CEO Olivier Crespin among its investors, received a banking license from the CBUAE earlier in July. Zand will provide retail and corporate services in the UAE.
By leveraging Application Programming Interfaces (API), a set of communication protocols used to develop computer applications, open banking platforms authorise retail and enterprise clients to access consumers’ financial data in realtime and share account information and transaction history with external parties such as vendors, suppliers, business partners and other banks.
Digital-native banks which are commonly known as neobanks, digital attackers or challenger banks first emerged after the 2007-2009 financial crisis. The business model has proven that economies of scale are currently the single most important critical success factor.
“Challenger banks cater to retail and SME customers who are generally underserved by traditional banks and leverage mobile-first technology to differentiate themselves by introducing innovative new products and providing superior customer service,” said PwC. Saudi Arabia’s cabinet approved the licensing of a third digital bank, D360 Bank, with a capital of $440 million in February. Last year, the Gulf state’s finance ministry licensed two other digital banks STC Bank and Saudi Digital Bank.
Source: Simon-Kucher & Partners
IF
YAP is considering a soft launch in the kingdom in October with plans to go fully live in Q1 Earlier2023.this year, the Central Bank of the UAE (CBUAE) gave in-principle approval for ADQ-backed Wio to launch operations. ADQ and Alpha Dhabi will own a combined 65% stake in the country’s new digital bank, UAE’s telecoms giant e& holds a 25% shareholding and First Abu Dhabi Bank owns the remaining 10%.
Unlocking value
UAE’s first independent digital bank opened its doors for business in August 2021. The digital banking platform, which secured a $41 million investment in July and targeted to raise another $20 million to finance its growth plans, is expanding its regional footprint by launching in Saudi Arabia, where it will operate in partnership with Bank AlJazira.
The core technology for a digital-first enterprise must be fast, scalable, flexible, reliable and secure. McKinsey said that the three main components that will enable a digital-native bank to meet these requirements include a hybridcloud architecture, a centralised data management hub and the use of APIs.
Meanwhile, Egypt’s Misr Digital Innovation is waiting for the country’s regulatory framework that will govern digital banks. Global consulting firm Simon-Kucher & Partners said that if other markets are a good indicator of what will happen next, then the MENA region can expect more neobank competitors to appear very soon. Neobanks in the Middle East are competing with units of traditional banks including UAE’s Emirates NBD, Bahrain’s Bank ABC and the National Bank of Kuwait (NBK) as Gulf states broaden access to financial services. Dubai Islamic Bank unveiled its digital offering rabbit, last December—a digital app that is aimed at tech-savvy customers. It offers a current account, globally accepted debit card, payments and money transfer services. Bahrain’s Bank ABC launched ‘ila Bank’ in 2019 – an AI-powered and data analytics digital-exclusive bank. ila Bank is expected to launch its services in Jordan this year before it expands into Egypt, and it also started offering credit cards and loans to Bahraini customers in March. Meanwhile, NBK launched Kuwait’s first digital bank, Weyay, last November and it will provide retail banking services.
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 financial services. OTHER MARKETS ARE A GOOD INDICATOR OF WHAT WILL HAPPEN NEXT, THEN THE MENA REGION CAN EXPECT MORE NEOBANK COMPETITORS TO APPEAR VERY SOON
Open banking
The emergence of new technologies is offering the financial services sector a window to be more innovative and efficient in service delivery. A study by SimonKucher & Partners showed that there are now around 400 neobanks around the world serving close to one billion clients.
Consumers’ increasing desire for frictionless, more seamless and intuitive value-added banking experiences amid a surge in fintech firms and ‘challenger banks’—who are seeking to capitalise on these developments—are driving incumbents to develop open, collaborative financial ecosystems.
The wave of new entrants, game-changing technologies and customers moving to digital services and platforms represents challenges and opportunities. As the use of digital banks accelerates in the GCC, the region has become the hub of banking innovation for digital business models.
“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 Gulf 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 marketdriven approach under the guidance of the Abu Dhabi Global Market and Dubai International Finance Centre.
BY TRADITIONAL BANKS AND LEVERAGE MOBILE-FIRST TECHNOLOGY TO DIFFERENTIATE THEMSELVES BY INTRODUCING INNOVATIVE NEW PRODUCTS AND PROVIDING SUPERIOR CUSTOMER SERVICE – PwC DIGITAL BANKS HAVE BEEN ABLE TO DIFFERENTIATE THEMSELVES FROM TRADITIONAL BANKS BY PROVIDING PERSONALISED PRODUCTS TO CUSTOMERS ALONG WITH SUPERIOR CUSTOMER SERVICE – PwC NEOBANKING
Digital payments are gaining popularity as cash usage wanes around the world.
RETAIL
The pandemic undoubtedly accelerated a string of existing trends in both consumer and business behaviors while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards.
There are now hundreds of neobanks offering hundreds of valueadded services to banking customers out there. Accenture said that as the payments market is evolving, customer experience is becoming the prime competitive differentiator.
ARE GENERALLY
Saudi Arabia is also implementing a market-driven strategy, but the kingdom’s approach is inclined towards a more formal regulatory framework though its regulations don’t follow Bahrain in requiring the opening up of APIs—which facilitate data sharing, or in mandating security standards.
CUSTOMERS
The Middle East region’s financial service sector is unarguably mature when it comes to regulators’ preparedness for open banking compared to other emerging markets though there are some teething problems such as the need to modernise the regulatory landscape. Digital payments Challenger banks typically use a different business model than incumbent banking institutions. These digital-exclusive banks receive most of their revenue from interchange—fees paid by merchants when customers make purchases using their debit cards.
Digital banking platforms can monetise payments by charging customers for payments and paymentrelated features or enter revenuesharing agreements with service providers. Stripe identified five primary ways to monetise payments and payment-related features including charging customers a fee to access payments, marking up each transaction, introducing fees for advanced payment features as well as adding a fee in cases where customers use other payment gateways and charging for advanced, customised reporting.
CHALLENGER BANKS CATER TO AND SME WHO UNDERSERVED
The Middle East is quickly catching up with Southeast Asia and Europe when it comes to licensing and operating digital banks. It remains to be seen whether the distinction between incumbents and digital-native banks will still exist in the next five years or they will be just known as banks.
Though debit/credit card payments still dominate in several countries across the Middle East region, digital products such as payment apps, digital wallets, buy now pay later (BNPL) and account-to-account payments are gaining traction.
38 Banking and Finance news in the MEA market PwC said that open banking has the potential to reshape the financial services landscape and several financial centers in the emerging markets, the GCC region included, are making considerable moves in this space.
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In recent years, we have witnessed the launch of neobanks in this region, either by incumbent banks or by institutional and individual investors. Some have shown promising signs of success in a relatively short period. This could encourage others to tap the
How long, on average, will it take Neobanks to reach profitability from their launch date? Like any other business, several factors come into play in determining how long it will take to reach profitability and, more importantly, how to maintain that profitability. Many of these factors are specific to the business itself, but others are external.
Mohamad El Khalil, Director, Supervision at the Dubai Financial Services Authority – DFSA Mohamad El Khalil Director, Supervision at the Dubai Financial Services Authority – DFSA, explains that with their distinctive value proposition and efficiencies, and an expanding range of products and services, neobanks could become standard in the next decade
The Neo Normal C an we expect to see more “greenfield” Neobanks start operations in the region? Neobanks were introduced to the MENA region relatively late compared to other parts of the world. There are hundreds of neobanks operating around the world, market in the future. With the current optimism regarding future economic growth in the region, coupled with ambitious “innovation” agendas by key governments and support provided by regulatory authorities, it will not be surprising to see more neobanks being launched in the coming years in the MENAIncumbentregion. banks who lag behind peers in their digital transformation may eventually have to rethink their strategy to be able to maintain their market share a neobank could be an option. International and regional investors might also see an opportunity to step in as they try to get a slice of the regional banking pie.
While this region provides many opportunities, the existing banking landscape is very competitive with the presence of several large and wellestablished players. Neobanks that offer a distinctive value proposition for but very few are operating in the region.
NEOBANKING
40 Banking and Finance news in the MEA market
In the last few years many initiatives have been launched by governments, Central Banks, regulatory authorities and other agencies in the region aiming to encourage and support innovation in the financial services industry. With time and experience, strategies adopted will need to be regularly revised and adjusted, taking into account lessons learned and adapting to the unique characteristics of theTheregion.UAE has been a pioneer in that respect which has helped to position the country among the top innovation hubs globally. The Dubai International Financial Centre (DIFC) in particular, has become one of the world’s most advanced financial centres, and the leading financial hub for the Middle East, Africa and South Asia (MEASA) region.
The DIFC has developed a state-of-theart, vibrant, ecosystem which fosters innovation. The DIFC Innovation Hub is now the region’s leading innovation ecosystem with more than 500 techdriven firms operating from the Centre. On the regulatory front, the Dubai Financial Services Authority (DFSA), the independent financial services regulator for the DIFC, has introduced a number of initiatives, including the Innovation Testing Licence (ITL) Programme which enables ITL holders to test new and innovative financial products, services and business models. The DFSA has also introduced new policy regimes and adapted existing frameworks to accommodate new or evolving business models, including its crypto-tokens regime which is expected to come into force in November 2022. There will always be room for improvements to the ecosystem. Further cooperation and integration within the region will help to promote a business-friendly ecosystem and avoid unnecessary operational burdens. When will the “Neo” in Neobanks no longer be necessary to distinguish them from the currently more traditional banks?
WE ALSO EXPECT THE OFFERING OF NEOBANKS TO EXPAND BEYOND RETAIL PRODUCTS AND SERVICES
While the nature and range of products and services offered by neobanks could expand in the future, it is key for both providers, as well as regulators, to maintain an understanding of the nature of any product or service offered and make sure that clients are not exposed to unnecessary or excessive risks. Does the Middle East need to adopt strategies different to other regions to develop a successful Neobanking ecosystem?
41mea-finance.com customers, succeed in delivering the customer experiences they promise, and efficiently reach a considerable volume of operations, will be able to achieve profitability sooner rather than later. A favourable macroeconomic environment is also a key factor. It is crucial for neobanks to have continuous support from a robust shareholder base that understands and appreciates the nature of this business, has a long-term vision and realistic expectations about returns.
If technological evolution continues at the same pace seen over the last decade, “neo” banks will become standard within the next decade! The key word is innovation. It is imperative for financial service providers to be innovative in their offerings and to provide customers with better, more efficient, solutions and an enhanced experience. Those who will be successful in doing so will be able to survive and thrive. Those who will fail to adopt a more dynamic and agile approach to their structure, governance, and way of doing business may struggle to maintain market share and might cease to exist.
What products and services do you predict that Neobanks will be offering in five to ten years from now? Many neobanks have so far been able to leverage new technologies to offer customers mostly “traditional” products and services, but in a much more efficient way, both in terms of time and cost, by using innovative delivery channels. In the coming years, it is expected that technological innovation will make it possible to offer more tailored products and services which could respond to the needs of specific client segments. It would also allow neobanks to take specific customer profiles into consideration from a risk/pricing perspective. We also expect the offering of neobanks to expand beyond retail products and services. Some existing technologies will certainly play a greater role in offering services more efficiently to other customer segments, particularly in the commercial banking/SME space. Other products can also be offered in a much more innovative and efficient manner, including those related to transactional banking, particularly trade finance. Some of the current emergent technologies, such as Distributed Ledger Technology and the metaverse, will influence the way financial products and services will be offered in the future.
CTO at Securrency Capital describes how this fast-evolving sector will shape the financial services landscape
Are we going to see the incumbents’ Neo-subsidiaries outlast the new players because they have an established trust, an existing license and profitable parent channels to fill the coffers? Or are they going to continue to lose customers to the new players who understand them better, in a more innovative and congruent way and have supportive VC funding with a business model to support it? The truth will as ever lie somewhere in the middle with closures on both sides.
Moving Ahead in the Game
Lessons from European Neobanks would suggest that focusing on existing markets and widening their product offering to monetise their existing client base via more profitable channels is the Neobank? I don’t think we will see many new contenders do this that are not already in flight or unless they have major government backing. Which leave us with new unlicensed Neobanks and the evolution and pivoting of other FinTech’s already in the market including Digital Wallets, FX, Crypto Exchanges etc expanding their product or seeking full bank licenses after time, like Revolut.
an we expect to see more “greenfield” Neobanks start operations in the region? As Non-Bank “TechFin’s” such as Apple enter the ring, only regulatory restriction will limit their spread. The incumbent banks’ Digital spin-offs will be a given, so, what then of the Standalones? Strategy will be everything; take the Zand approach and go all out for a new fully licensed
When one looks at the offerings across sectors there is still a heavy weighting to traditionally serviced retail customers but beyond this segment, the unbanked, the Corporate and SME market and the UHNW sector would suggest there is still a lot to play for even in a fairly saturated market.
How long, will it take Neobanks to reach profitability from their launch date? The challenge of when Neobanks reach profitability is gaining a lot of attention as the excitement and valuation hype subsides. In general, the independents have used large amounts of venture capital to maintain their growth trajectories but have a long way to go before they start to eat heavily into traditional banks’ customer bases and their cost of acquisition becomes sustainable. Given the customer demographic they are currently attracting, this feels like a tall order with the current product offering.
NEOBANKING
42 Banking and Finance news in the MEA market
C
Neale Croutear-Foy, CTO at Securrency Capital
With foresightful thoughts on Neobanking, Neale Croutear-Foy
When will the “Neo” in Neobanks no longer be necessary to distinguish them from the currently more traditional banks?
Neobanks and new Digital offerings of current incumbents should be positioned to absorb most traditional customers over a relatively short space time, replacing older channels and operational models that are expensive to change or maintain. It just makes business sense – better customer service, cheaper more efficient operations, reduced risks, faster turnaround time of new products, greater control.
‘Neo’ will fade because, the legacy banking model will likely be referred by a new ‘old-bank’ name as it will no longer be the norm; Neobanks will also expand to the point that they will bear little resemblance to their Neobank roots, with many of these pioneers already driving that change.
Not all customers are going to adopt to the new services either because they do not want to, or are not able to do so, but most will; easily convinced by cheaper and easier services. For some customers, it is essential to communicate with bank staff in person and an extensive network of ATMs provides access to cash which whilst getting rarer on a day-to-day basis, is still a vital tool.
The Digital banking sector in the UAE has in the past lagged behind Europe and North America due to the slower adoption rate of modern banking standards, complexities in license requirements effecting standalone entities and a degree of conservatism. This has tended to impact collaboration between incumbents and FinTech’s and resulted in a number of false starts. However, things have changed rapidly as the Regulators align the UAE’s progressive digital agenda with the country’s banking industry.
THE TRUTH WILL NO DOUBT LIE SOMEWHERE IN THE MIDDLE WITH CLOSURES ON BOTH SIDES
With the UAE Central Bank establishing a dedicated FinTech Office in 2020 and the Emirates Blockchain Strategy 2021 in place, this has all helped the rise of new regional Digital Native financial services, with the UAE becoming one of the fastest-growing economic and technological hubs in the World with close to a tenfold increase in FinTech’s over the last 5 years.
I do not see their evolution as a Neo bank issue, it is a general strategy issue on how to leverage a platform approach.
When it comes to product offering, if the fundamentals have been built right from the start, Neobanks should be able to take on much more of a platform and ecosystem play both in terms of being able to build resiliency as well as simplicity into their tech stack. This will not only reduce long term costs and speed up delivery, but also allow them to add new product offerings and services to protect their client franchise without the need to develop alternative solutions
The two primary offshore regulators, Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have played a pivotal part in this expansion providing a zone where FinTech’s can operate freely while maintaining international banking regulatory standards. Of course, the UAE has an amazing opportunity to lead the way in Islamic banking and Sharia compliance in the Neo banking space.
I would not be surprised if in just a few years Neo is dropped entirely as a result, so we can get excited about the rise of another term that will describe solutions encompassing a whole variety of Financial Services and Banking Products … all hail MetaBanking !
Currentthemselves.producttrends can all be leveraged to enhance the customer service and simplify access. BNPL and Embedded Finance have been two of the largest market booms of late and are likely to continue along with Digital Investments, NFTs and Cryptocurrencies which are among the most profitable digital banking products. Their rapid adoption among digital natives is well known and despite recent drops in the market, must be part of future Neobanking strategies as the marketSecurrencymatures. Capital for example, harnesses an open and decentralised core offering that provides access to regulated digital assets, digital asset management, fractional ownership as well as providing access to numerous markets and non-regulated digital products under one roof. This can all be simplified into a single distribution / integration layer via APIs into any bank platform. Banking as a Service (BaaS) or Product as a Service (PaaS) offerings will continue to provide profitable opportunities as with white labelling; monetisation of Open Banking services and Data types will evolve to new levels and could be leveraged by Neobank platforms via cross selling of Digital products including smart contract mortgages, and loans. Does the Middle East need to adopt strategies different to other regions to develop a successful Neobanking ecosystem?
43mea-finance.com better choice over geographic scaling. Perhaps a lesson to be leveraged by the UAE when considering expansion across the GCC. What do you predict that Neobanks will be offering in five to ten years from now?
I foresee digital investments, digital products and digital lending solutions as part of the neobank’s offering. I also see tokenisation of private assets like real estate being part of these offerings that make investment more accessible and liquid. Even NFTs will have a role to play in finance, but their full potential is yet to be seen.
We can also monetise our platform by replicating all the bank’s instances, which gives us other revenue stream opportunities.
At Zand, we have adopted a unique business model with three different revenue streams: Retail – where our path to profitability might take longer as the first years are dedicated to attracting clients and ensuring customer satisfaction Commercial banking with digital lending solutions – where profitability can usually be achieved faster due to the nature of business and transaction size Olivier Crespin, Co-founder and CEO, Zand
What products and services do you predict that Neobanks will be offering in five to ten years from now?
Many countries in the Middle East have not yet fully accelerated their effort toward creating neobanking ecosystems. Still, they eventually will have to face the inevitable to catch up with the global economy. They only need to look at UAE’s strategies and regulatory approach as a leading example to follow.
The distinction between “digital” and “traditional” banking is fading, with digital banking services being part of the proposition of most banks.
NEOBANKING
How long, on average, will it take Neobanks to reach profitability from their launch date?
44 Banking and Finance news in the MEA market to the best products, because we do not have high operating costs, any branches or heavy infrastructure. Also, by building a brand-new bank with a clean slate, we have the advantage of being free from any legacy, whether in technology, mindset or process. This has enabled us to build a robust and agile platform on which we operate.
When will the “Neo” in Neobanks no longer be necessary to distinguish them from the currently more traditional banks?
Based on the global growth of Neobanks, our region can expect more to be set up here, says Olivier Crespin Cofounder and CEO, Zand, with more countries looking to the UAE’s regulatory approach to make it happen, and the distinction between digital and traditional banks fading
A recent white paper published by Simon-Kucher & Partners showed that while Neobanking is a 300-billion-dollar industry (based on 2021 valuations), less than 5% of the world’s 400 Neobanks have turned profitable so far. The paper attributed the gap between growth/valuation numbers and profitability, to low revenue levels per client, as accounts and card-based payment services are the two core products that generate an estimated 70% of revenues.
Does the Middle East need to adopt strategies different to other regions to develop a successful Neobanking ecosystem?
Digital DNA C an we expect to see more “greenfield” Neobanks start operations in the region? If the global markets are considered as an indicator of the rise in neobanks, then the MENA region would also be expected to witness increased competition in thisIfspace.theCovid-19 pandemic taught us anything, it is that banks that embraced technology were better equipped to survive amidst the crisis. It also forced financial institutions to re-examine their strategy and re-calibrate their focus on the customer’s needs. In countries like the UAE, the banking industry is progressing rapidly towards a full digitalisation, and neobanks are proving to be the leading solution to meet the country’s ambitious digital agenda and innovative regulatory approach. As a digital-only bank, Zand puts customer experience and satisfaction first. We provide our customers with ease, simplicity, recognition and accessibility
However, the nuances of “neobanks” vs “digital speedboats” of traditional banks vs “Fintechs” are still lost on many. For us, being a fully digital bank means embracing Zand’s DNA of banking and digital. With banking, we mean being licensed by the Central Bank of UAE and adherence to compliance, regulations, risk management and financial expertise. With digital, we mean creating unique customer-centric products, leveraging analytical data and building innovative technology.
Believe the hype, it’s here. ENTER THE NEXT DIGITAL UNIVERSE GET YOUR EVENT PASS 4000+ COMPANIES 700+ STARTUPS 170+ COUNTRIESgitex.com#GITEXGLOBALPLATINUM&LANYARDSPONSOR SILVER SPONSORGOLD SPONSORS ATTENDEESSPONSORBADGE INNOVATION PARTNERLOUNGEMAJLISSPONSORLOUNGECONNEXIONSSPONSOR DIAMOND SPONSOR 10-14 OCT 2022THE WORLD’S LARGEST AND MOST INFLUENTIAL TECH + STARTUP EVENT DUBAI WORLD TRADE CENTRE
Exhibit:
Anita Krishna Gupta, Anita Krishna Gupta, Head of Equity Strategy, CIO Office, Wealth Management Emirates NBD
and
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GCC equity performance correlated to oil prices, will benefit with diversification of the bourses
Source: Bloomberg, CIO-Office of 24th August 2022, MSCI
indices for GCC and EM MIDDLE EAST EQUITIES
Anita Krishna Gupta Head of Equity Strategy, CIO Office, Wealth Management Emirates NBD tells us why equities are doing well at this time, changing the landscape of the market and currently a bright spot in comparison with the rest of the world
Uptrend Likely Continues
he Middle East’s equity landscape is changing: a broadening sectoral mix of retail, utility providers, health services, or services, along with recent legislations supporting foreign investment, residency and tourism, have brought it into the global investor’s spotlight – who also appreciate the solid currency peg to the dollar. However, trading volumes still have a long way to go as does the percentage of overseas investor holdings compared to some other emerging markets. This is a concern for now, but a great catalyst for performance in the future. Middle Eastern countries that are petrochemical exporters, have largely outperformed EM and global peers since Feb 2021, contiguous with the rise in oil prices and the spill through to the economy. GDP growth has surprised to the upside, in a world where growth numbers are seeing continuous downgrades. Twin surpluses–fiscal and current account balances—have supported investment in oil rallies, but it’s not all about oil with continuing investment in diversification. Is the Middle East rally sustainable if oil prices fall? It should in the medium term, as the regional indices, except for the KSA are not petrochemical focused. Recent investor roadshows have been instrumental in bringing in more direct institutional demand for the KSA and UAE markets and also as their weight in global indices ( MSCI, S&P,FTSE) grows and attracts direct passive and active infrastructure—the UAE rail network, giga projects in the KSA such as Neom city, and a continuous focus on technology. GCC markets are up 13% year to date, led by the UAE, KSA, Kuwait and Qatar, and haven’t seen performance discounted by the stronger US Dollar. By comparison, global equities are down 15% in the same period. Whilst EM equities have no correlation to the rise in oil prices, Middle East equities provide a diversified investment vehicle for profiting from
news in the MEA
T
Net return
as
Brent Oil CO1 MSCITadawulGCC KSA MSCI EM MSCI UAE2602201801401006020 2017 2019 20212018 20222020
47mea-finance.com fund flows. The KSA has a 4.7% weight in the MSCI EM index with 37 member companies, the UAE 1.3% with nine members, Qatar 1.2% with 12 members and Kuwait 0.9% with seven members.
A big constraint to investing in the region for offshore retail investors, has been that local brokerage accounts are the only way to buy stocks and investors are not keen to have multiple trading accounts in foreign jurisdictions or in some cases are not eligible to trade local equities. The ADR/GDR instruments which are typically dual listings in UK/ US jurisdictions have not been used by regional corporates as a tool for attracting overseas investors. More recently the large global asset managers have introduced ETFs, both US domiciled and UCITS compliant for the more liquid Middle East markets. This provides a more accessible investment vehicle and also a broader exposure to equity markets. Also, the increasing Foreign Ownership Limits (many corporates have almost 100% of free float with no restrictions on foreign investment) have made regional equities more
MORE RECENTLY THE LARGE GLOBAL ASSET MANAGERS
Importantly, new issuance has added to the depth and breadth of the region.
HAVE INTRODUCED ETFS, BOTH US DOMICILED AND UCITS COMPLIANT FOR THE MORE LIQUID MIDDLE EAST MARKETS IndexCountry Level TR YTDTR 2021MarketcapUSDbn P/EForward P/BForward YieldDividend Daily Traded USD Value 6 month MSCI UAE UAE 792 3.2%50.2%6014.4 1.8 3.6% 235 MSCI KSA KSA 1,48912.3%38.0%3,003 16.6 2.5 2.8% 4,755 MSCI Qatar Qatar 998 17.3%15.2%4413.6 2.03.6% 132 MSCI GCC GCC809 11.6%38.8% 3,459 12.0 2.3 2.9% 1,425 MSCI EMEM 990 -17.7% -2.3% 20,093 11.3 1.6 3.4% 82,698 Exhibit: GCC markets still at attractive valuations
Saudi Aramco set the pace in the KSA in Nov 2019, followed by Nahdi Medical, ACWA Power, Saudi Tadawul to name a few and illustrate the industry diversification. Strong post listing performances are encouraging further issuance. Abu Dhabi Ports, Borouge, Fertiglobe, ADNOC Drilling and Yahsat did the same to the Abu Dhabi market depth. In Dubai, there are 10 state-controlled entities listing underway with DEWA and TECOM already successfully listed. Family-owned businesses are increasingly attracted as well. The Dubai authorities are focused on improving market breadth and liquidity with a market maker fund and an AED 1bn fund to encourage technology companies to list on the local bourse. Combined with easing restrictions on foreign ownership this could increase the weight of the Middle East stocks in EM indices and inflows from international investors. Overlaying corporate culture is a focus on green initiatives. The UAE property code promotes green and efficient buildings. Corporates Aldar and Emaar, among others, already have sustainability frameworks in place. The KSA is investing in hydrogen initiatives. The region is harnessing solar power. It’s not just about oil for the region—there’s still a long pathway of returns, but like all markets there will be rallies and pullbacks.
Whistaccessible.highoilprices remain supportive for the region, the focus on non-oil revenue, digitisation of services and adoption of technology in every sphere are sustainable drivers of growth. Valuations remain attractive with the MSCI GCC at 12X forward earnings and 1.5X Price to Book, much lower than comparative EM peers, barring China. The region has also shown a divergence from global markets in performance, as besides the obvious beta to higher oil prices, the higher dividend yields have made the region attractive in a rising inflationary environment. Right from banks and utility providers across the Middle East, to petrochemical companies in the KSA and telecom companies in the UAE, it’s not only the attractive dividend yield but the quality of the dividend with growth and the sustainability of payouts through different cycles which makes these high dividend payers good long-term investments. With a large representation of banking stocks, the Dubai Index offers one of the highest dividend yields globally at 3.7%. Banks regionally have high CASA deposit ratios which makes them benefit from rising policy rates. The real estate developers have seen share prices rise, though not great dividend payers, reflecting the pickup- in off plan and secondary residential sales and rental increases in the UAE and the global real estate uptrend as people sought higher end housing as a result of pandemic lock downs. Dubai has become a preferred destination for expats on account of its remarkable handling of the pandemic. The recent alignment of the UAE with international trading days, through the reform of the working week, is another positive for inflows and improved trading volumes.
Damien Hitchen, CEO, Saxo Bank MENA
Wealth and DamienofManagementPortfolioinPeriodsMarketUncertaintyHitchen
confrontingcurrentperspectiveSaxo’sonthematterstheworld today?
W hat is
Even with a backdrop of global macro events, there have always been regional and local patterns to trading behaviour and these remain. Most investors display a “home bias”, which could be country- or region-specific, on the basis there is a higher level of knowledge and familiarity on that level when compared to a global picture. So, while some of the issues above are global—for example the significant inflationary pressures seen across the globe – we have not seen in 2022 a material switches away from historical trading patterns from our clients.
With inflation hitting 40-year highs in some places, how do you expect regional investors to hedge against this?
There are multiple issues that are impacting markets today. From geopolitical risks, de-globalisation and the on-going Russia-Ukraine situation, to significant inflationary pressures affecting most parts of the world, Central Bank monetary policy and highly volatile capital markets. Saxo’s perspective is that it is more important than ever that we provide our clients with topical and timely research, commentary and tools to be able to navigate the uncertain markets that are a consequence of the many factors I have just mentioned. Are you noticing developing patterns or trends in regional investment behaviour specific to the macro-level challenges now facing the world?
With recent inflation statistics hitting more than nine per cent in the US, double digits in the UK, and according to the latest Dubai Statistics Centre
CEO, Saxo Bank MENA gives us his perspectives on portfolio management in challenging times
48 Banking and Finance news in the MEA market PORTFOLIO MANAGEMENT
Saxo has built a suite of risk-management content, educational webinars and videos that are available to our clients.
Do you foresee the re-emergence of a more predictable, pre-pandemiclike investing environment in the coming five to ten years?
CPI release 7.1 per cent (*1) in Dubai, this is a very difficult question to answer. Aggressive inflation is a relatively new phenomenon and has arisen very quickly this year, so while it is becoming increasingly clear that inflation will not return to normality as quickly as most people hoped, it may be that in the short-term investors adopt a waitand-see approach. While some of our Trader clients are taking advantage of the opportunities of a downward market environment, across the industry many Investor clients are adopting a sit-on-the side-lines view and adopting a passive approach. There may be some Investors who return to the traditional depositaccount approach with interest-rates rising following Central Bank hikes, but even with this approach they are faced with a negative real-return scenario. Are ESG-related concerns waning in precedence as clients discuss the management of their investment portfolios in these uncertain times? There is a balance to strike between the longer-term ESG mandate and compelling short-term requirements. Many developed countries, particularly in Europe, have been forced to put their clean energy targets on hold to prioritise critical short-term energy demands. Companies are being pressured to do the same. In looking at our Saxo investment themes in 2022, the best performing baskets YTD are Commodity, Defence and Logistics themes, whereas some of the ESG-linked baskets such as green transformation and renewable energy are materially negative YTD, which would support the view that there is a shortterm pivot back to traditional energy and real-asset industries and away from ESG supportive investing.
*1 deflation-funkhttps://www.bloomberg.com/news/articles/2022-08-19/dubai-prices-skyrocket-less-than-year-after-steep-
Given the significant pace of change in the investing environment since the start of the pandemic, this is very difficult to project. The last years have witnessed unprecedented liquidity available to invest in capital markets and the rise of the army of retail investors, all came following a decade-long bull-run. In the short-to-medium term, our house view is that companies will no longer be rewarded simply for revenue growth, but rather see improvements in return on invested capital and free cash flow. The V-shape recovery, which happened during that long bull cycle, will not happen this time and the bear market will likely not exhaust itself until the new generation of investors – those that went all-in on speculative growth stocks, Ark Invest funds, Tesla and cryptocurrencies – have fully capitulated and withdrawn excess (and cheap) liquidity from the markets. That said, more than ever, we provide our clients with access to tools to take opportunities in both upward and downward market conditions, a suite of risk management tools for their portfolios, and regular commentary and inspiration on market events in an increasing uncertain and volatile world.
You mention your riskmanagement tools, how can these help clients in volatile and uncertain market conditions?
From explaining various risk-control strategies such as our Saxo “account shield” that allows clients to place predefined automated close triggers on positions to control portfolio risk, to simple concepts such as stop-loss orders and the “two per cent rule of allocation” there are a host of risk-management tools available to our clients that are suitable for everyone from beginners to even the most-experienced traders. IS A BALANCE TO STRIKE THE LONGER-TERM ESG MANDATE AND COMPELLING SHORT-TERM REQUIREMENTS
49mea-finance.com
BETWEEN
Given the unusually wide range of issues facing the world, do traditional “safe-haven” investments like real estate or gold remain as such?
THERE
Our house view is, together with traders responding to the highest level of inflation in 40 years and turmoil in stocks and cryptocurrencies, hedges in gold against the rising risk of stagflation—central banks kill growth before getting inflation under control – is one of the reasons why gold has not fallen at the pace dictated by rising real yields. With that in mind, we are watching through the exchange-traded fund (ETF) flows what investors are doing rather than what they are saying. Considering the risk of continued turmoil in global financial markets as the transition towards a higher interest-rate environment takes its toll on companies and individuals, we maintain a bullish outlook for gold. We stick to our forecast in Q2-2022 that, following a period of consolidation in the second quarter, both gold and silver will move higher during the second half of the year, with gold eventually reaching a fresh record-high.
Ramana Kumar Chief Executive Officer, Magnati talks with MEA Finance about Magnati MetaV, the first fully integrated metaverse platform with traditional payment rails and gateways allowing merchants to bring new retail experiences to customers M agnati settechnologylaunchedrecentlyanewthatistorevolutionise shopping. Tell us more about it. Magnati MetaV is the region’s first metaverse platform enabling users to experience e-commerce in a new, immersive way. It will completely transform the shopping experience for consumers, who will be able to shop, learn, play games, attend events and more through a seamless online experience, all from the comfort of their homes.
A Dimension of Possibilities
Why is now the right time to launch Magnati MetaV?
METAVERSE PAYMENTS
50 Banking and Finance news in the MEA market
New
Magnati is at the forefront of technological developments and trends, and we believe that customers are ready for this exciting new technology. The UAE retail landscape is undergoing massive changes; traditionally, the region has prioritised in-person retail experiences, with a reliance on cash for most transactions and transfers. In recent years, there has been a shift towards e-commerce and digital payments that can be traced to a number of factors, including technological Customisable avatars can explore a discovery-driven online environment where consumers can see and feel retail offerings in multi-dimension. Shoppers will be able to explore, pick up and purchase products across a mix of retail categories, including fashion, groceries, gaming, technology and more. They can also purchase tickets and sign up for events to attend virtual concerts, sporting events and educational courses. With the launch of Magnati MetaV, we are ushering in the next generation of e-commerce, “experiential commerce”.
What other features will Magnati MetaV offer to increase the appeal for users?
Magnati’s vision is to transform payments into possibilities. How is Magnati MetaV helping to fulfil the vision? Magnati’s vision of transforming “payments into possibilities” is about unlocking new growth opportunities for our consumer, government, merchant and institutional clients, while setting a new standard for innovation and delivery in the payments industry. We have established ourselves as a leading payments company, providing merchant acquiring, consumer payment solutions, government payment solutions, issuer processing and acquiring processing services that deliver improved experiences and increased efficiency for our merchant clients.
Currently, e-commerce merchants face challenges like high returns to sales, exchanges and drop in sales due to dissatisfaction in customer experience. Merchants may also experience a fall in future sales due to customer dissatisfaction. These issues arise when customers shop online by viewing 2D images of products, and the product they ultimately receive does not match what they were expecting. Magnati MetaV helps to solve this by providing the tools that let customers experience a product beforeThinkbuying.about how Magnati MetaV can be applied to the hospitality sector. Hotels can create a virtual experience on the metaverse that enables consumers to see and explore in exact detail the rooms they will be booking. This will help to reduce ambiguity and uncertainty for buyers before they book a room.Themetaverse also opens up new revenue opportunities for brick-andorganisers and sports broadcasters who gain access to virtual venues and arenas with limitless capacities, allowing these merchants to scale quickly and easily. The possibilities are endless, and we welcome retailers to co-create new virtual worlds with us.
Given that the metaverse has only recently been applied to the retail sector, is the market ready for Magnati MetaV?
What growth opportunities are there for e-commerce retailers?
51mea-finance.com
Magnati MetaV combines all three aspects into a single user-focused platform. Given that this is a new technology, it is important that there is a bridge that connects the existing ecosystem to the future to encourage user adoption. Hence, Magnati MetaV is the first metaverse platform fully integrated with traditional payment rails and gateways, so that shoppers can pay for products and services through cards, wallets and other existing digital form factors. While shopping in Magnati MetaV will feel entirely new, the payment experience will be second nature for those used to paying by card or digital wallet.
Of the many benefits that Magnati MetaV offers, one of the biggest draws is the ability to mimic a shopping experience for users, while offering them the highest levels of convenience. For example, shoppers can be comfortably sitting at home while visiting countless stores in the metaverse, just by controlling theirWeavatar.understand that socialising with friends is an important aspect of the retail experience, so building this into Magnati MetaV was a priority for us. Digital avatars, controlled by their users, can socialise with one another while shopping, gaming or attending a concert in the metaverse. Magnati MetaV’s customisable and interactive avatars create a better meeting experience by embodying each user’s physical identity and characteristics.
Ramana Kumar, Chief Executive Officer, Magnati advancement, consumer behavioural changes and COVID-19. As people move more of their lives online, the metaverse provides an enhanced platform for e-commerce in line with changing consumer habits. Through Magnati MetaV, we are enabling merchants to provide brand new retail experiences to their customers. The metaverse provides users with richer visual and sensory information, as well as improved quality of information, as they shop online.
Absolutely. Consumers are always looking for new ways to be engaged, provided that the experience is appealing, participation is seamless, and technology is secure.
52 Banking and Finance news in the MEA market
It is undeniable that the payments business is a dynamic, continually evolving industry and the pace of change over the last 40 years has been incredible. We’ve moved from the traditional paperbased payments to a faster, more secure digital infrastructure. In that timeframe some of the initial and most notable advances centered on payment security with the adoption of Chip and Pin for F2F payments, contactless and tokenisation to name a few. As time went on more and more new players entered the industry competing with traditional retail banks and as the digital transformation that AFS is currently leading within the region developed, we are now on the cusp of a growth in cloud-based payments and payments across the metaverse. In my view the pace of change within the industry will continue on an everincreasing upward trajectory, always with the end user customer’s needs at the forefront of further market evolution.
Samer Soliman CEO of Arab Financial Services (AFS) gives us his perspective on the regional payments scene from his position in Bahrain, detailing the changes and developments in this vital industry sector and what can be expected in the future
Samer Soliman, CEO, Arab Financial Services
After almost forty years of AFS providing payment services, tell us what you believe have been the real gamechangers in payments technology?
Payments, Past, Present and Pending
BANKING TECHNOLOGY
There is no one thing that affects the manner in which AFS conducts itself or does business with our diverse range of customers. Since I was appointed CEO of AFS, my management team and I have embarked upon a mission to be the lead player in digitising payment processing across the MENA region, and every part of everything we now do is based upon using the latest technology aligned to our innovative and flexible approach to business, to satisfy all of our customer’s needs.
53mea-finance.com
How have landmark shifts in payments, like the adoption of Digital Wallets changed how AFS does business?
What benefits and services does the AFS BPay app offer?
The recent launch of the AFS BPay application is one example of this.
WE ARE VERY FORTUNATE IN BAHRAIN TO HAVE A VERY FORWARD-THINKING AND DYNAMIC REGULATORY ENVIRONMENT WHICH SUPPORTS AND DRIVES INNOVATION IN THE PAYMENTS SPACE
BPay is AFS’s new digital wallet and upcoming payments super app offering. Owned and operated by AFS, BPay is a secure, easy-to-use and fully featured payments app that is part of a Kingdom-wide initiative to make Bahrain cashless and supports the Kingdom of Bahrain’s government initiatives to drive digitalBPaytransformation.enablesconsumers, merchants, and corporations to make and receive their payments in an easy, fast and secure way via their smartphones instead of cash. BPay exists to be the first-choice digital payments, commerce and financial services app offering instant, global and local payment solutions that all consumers and businesses can partake in to serve their everyday needs while supporting new entrants into the mainstream economy. Users can use BPay to purchase goods or services, to send and receive money peer-to-peer (P2P), store money for when they need it, store credentials for various payment instruments securely and digitally, remit money (send money internationally), pay bills, use valueadded services and more. Customer identity and electronic transactions are secured through eKYC, encryption, tokenisation and various authentication and authorisation methods. The service is available via smartphone applications for consumers, web portals and directly integrated into Point of Sale (PoS) terminals—for efficient, convenient use. AFS is based in Bahrain, which is known for its forward-thinking regulatory environment. Has this been an advantage to your business, and if so, how? Regulation and governance are key to AFS (and other payments players) initiating transformative change. At AFS we have the latest technology and payments data to use insights to craft more intuitive, integrated, and productive payments experiences. However, we don’t believe this is enough! That’s why at AFS we are committed to bringing key stakeholders directly into the innovation process. Our focus is on collaborations and partnerships for co-creation of tomorrow’s solutions. This includes regulators, and AFS has always been committed to a strong partnership with its regulators. We are very fortunate in Bahrain to have a very forward-thinking and dynamic regulatory environment which supports and drives innovation in the payments space. The Central Bank of Bahrain (CBB) has played a key role in supporting AFS and our vision of the future of payments, which is aligned with theirs alongside our shared objectives for cashless societies. That’s why we see the relationship between AFS and the CBB as a partnership for sustainable and positive growth that will help us deliver on the transformation we are gearing up for as we co-create and deliver on a broader vision of payments for the Kingdom of Bahrain and the wider MEA region. What do think will be the next gamechanger in payments and finance? I expect Open Banking, embedded payments and Digital Currency to emerge as exciting developments for the industry, but the one thing I am absolutely certain about is that the payments ecosystem will continue to evolve exponentially.
While there is consensus that cloud adoption is the future, there are different perspectives, approaches and models to consider, with each having their own merits and demerits. While the public cloud offers scale, flexibility, on-demand computing and elastic scaling, private cloud offers greater capabilities around security, control, compliance and customisation.
the highly regulated banking industry has been cautiously optimistic about cloud and has been treading softly—given the concerns around security, compliance and skilling. Yet, with changing customer preferences and an evolving competitive landscape with new-age cloud-native FinTechs in the fray, banks have begun to get a move on from monolithic systems and are rapidly embracing cloud. The cloud impact With cloud, banks get a flexible and scalable IT infrastructure with agile foundations, which empowers them to keep pace with emerging requirements, while taking new, personalised products to market with speed. The dynamic scaling and elastic load balancing capability of cloud help banks prepare for peak transaction loads during seasonal spikes and deliver high performance at all times without the burden of operational costs pertaining to maintenance, upgrade and management of infrastructure. Besides, by embracing cloud, banks can also get to gain from leveraging newage cloud native AI, analytics and more such technologies.
Cloud deployment models - Scale vs Security | Public vs Private
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Stating that it is an “absolute necessity”, K. Venkatraman VP & HeadTechnical Architecture, Infosys Finacle posits that hybrid multi cloud is the right step for a bank in its digital journey
K. Venkatraman, VP & Head - Technical Architecture, Infosys Finacle
BANKING TECHNOLOGY
Why Banks must prepare for a hybrid multi-cloud future
he shift towards digital is picking up pace, especially with the pandemic-induced momentum. As one of the primary enablers of digital transformation strategies, cloud continues to gain prominence across industries, attracting a significant share of IT spends by enterprises across theTraditionally,globe.
Preparing for a hybrid multi-cloud future While a hybrid, multi-cloud approach offers a multitude of advantages, there are a host of complexities associated with this setup which banks need to navigate.
Conventionally, large and mid-sized banks have opted for the greater control associate with private cloud. However, they have now started moving some of their non-mission critical applications to the public cloud. As the offerings by cloud providers mature further and concerns around security starts to fade away, these banks will do well to start phasing mission critical applications as well to public cloud. In our recent research on cloud adoption, 41% of the banks covered had chosen private cloud, 28% had gone with a public cloud, and the remaining 31% were using a bit of both.
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Moreover, most of the legacy applications banks today have, are not built for cloud and need to be maintained on-premises. While there are strategies banks are taking to get these applications cloud-ready (re-factoring, re-platforming and more), there is a long way to go.
The hybrid cloud proposition Hybrid cloud brings the best of both worlds and delivers a scalable, efficient and future-proof modernisation strategy.
Having data and applications spread across different environments and the associated heterogeneity, poses its own set of Datachallenges.replication is a concern with hybrid cloud. Applications perform best when they are closest to their datasets. In the hybrid model, we don’t have a mature way yet of replicating data across different cloud providers. This poses a significant challenge towards adopting a seamless hybrid cloud model with interoperability. Moreover, the lack of standardisation coupled with limited integration capabilities raises specific
A multi-cloud strategy for optimal performance While banks must embrace hybrid cloud and crack the right configuration of application across private, public, and on-premises, there is an even greater value in the move towards a multi-cloud approach. Here, banks work with multiple cloud vendors, leveraging their unique strengths and differentiators based on the applications and use-cases at hand. As the cloud landscape evolves, more and more cloud providers are starting to differentiate themselves based on a portfolio of managed services and other innovative enablers. For instance, cloud service provider (CSP) A has a stronger analytics capability, CSP B has better security, CSP C has a stronger blockchain proposition. Moreover, with the dynamic nature of the technology landscape and the evolving regulatory framework, it’s important for banks to balance their risk. For this, it is important that they have a choice to switch from one CSP to another seamlessly as per their needs and the marketAdoptingdemands.amulti-cloud approach can free banks from vendor lock-in issues, thereby allowing them to tap best-inbreed services for all applications. It also gives them more leverage when it comes to negotiating with cloud providers. Moreover, it helps banks to prepare for the future where the regulatory environment too might require banks to distribute their data across different cloud providers to meet emerging data security and residency requirements.
Therefore,concerns.banks need to explore new ways of working that focus on APIs, event-driven architecture and integration capabilities. As banks invest in digital transformation, they must look for cloudnative cloud-agnostic applications that facilitate an easy transition to multicloud environments. This gives them the freedom to choose vendors and data configuration of their choice enabling them to optimise their operations. They must also embrace containerised deployments to enable seamless and automated application development, improving efficiency.
The only question is, what is the most ideal configuration or mix that will deliver the most value? As more and more banks adopt the hybrid cloud model, the key challenge will be the identify the right mix of applications across on-premises, public and private cloud. While the popular perception is that everything should eventually move to public, there are many situations where the limitations of public cloud, such as latency, governance, data residency and other compliance issues, rule it out, and private cloud is what works.
As banking continues to evolve in line with changing customer expectations, banks must focus on ensuring that their technology infrastructure allows them the capabilities and freedom to deliver the best possible experiences. A move towards hybrid multi cloud is not only the right step forward, but also absolutely necessary at this stage of banks’ digital journeys.
Hybrid is the way forward, at least for the foreseeable future.
THE ONLY QUESTION IS, WHAT IS THE MOST IDEAL CONFIGURATION OR MIX THAT WILL DELIVER THE MOST VALUE?
56 Banking and Finance news in the MEA market
DCAP Group ™ (DDCAP), an industry-leading market intermediary and financial system solutions provider, connects the global Islamic marketplace responsibly via its proprietary system, ETHOS Asset Facilitation Platform™ (ETHOS AFP™). DDCAP aspires to be a best-in-class responsible and sustainable fintech and supports awareness of the business and ethical case for responsible finance. DDCAP is headquartered in London with representative offices in the Dubai International Financial Centre, Manama, and Kuala Lumpur providing a global footprint and connecting into ESG initiatives across the GCC and Southeast Asia. In tandem with its core offering, DDCAP seeks to invest within halal economy businesses with exceptional fintech strategies. DDCAP’s management believes that Islamic fintech SMEs like itself, and those within the wider halal economy, have great potential to embed sustainable and responsible practices
PARTNER CONTENT
Lawrence Olivier, Lawrence Olivier, Executive Director and Deputy Chief Executive Officer, DDCAP Group™
Lawrence Olivier Executive Director and Deputy Chief Executive Officer, DDCAP GroupTM, highlights their drive to be an industry leader in sustainability and its’ role in supporting the Islamic finance community
Fintechs in an ESGFocused WorldD
• Preserve and promote its reputation as a “first mover” in its space; and
• Committing to renewable energy where possible. For example, DDCAP’s London office uses only renewable energy, and its hosted servers are supported through energy generated 100% from renewable sources; and
• Prepare to engage with stakeholders and clients who are asking more questions, more frequently, about the sustainability of their value chains.
works to these same standards itself. Through DDCAP’s Sustainable and Responsible Actions (SRA) Programme, by which ESG considerations are addressed, DDCAP has made the public commitment to develop a more sustainable, equitable and prosperous world and supports the view that those in business must adopt strategies to deliver not only financial results but also social and environmental outcomes. In furtherance of this, DDCAP became a service provider signatory to the UN Principles for Responsible Investment in 2016 and a stakeholder endorser of the UN Principles for Responsible Banking in 2020.
• Forming an eco-partnership with a tree-focused charity to provide not only staff volunteering opportunities but also, through its carbon-offset programme, the ability to offset its carbon footprint through the development of urban greenspaces in underprivileged areas and improving urban air quality.
ARE UNIQUE CONSIDERATIONS FOR THE POTENTIALLY
As part of this initiative, DDCAP achieved the following: • Engaging a third-party service provider to assist in measuring its environmental footprint and in setting plans to monitor and reduce this footprint and improve ESG performance generally.
• Gain further competitive advantage from its SRA initiative.
ESG
57mea-finance.com across the wider industry and DDCAP sees such investments as a natural complement to its own ESG initiatives and industry Accordingly,goals.DDCAP
Considerations as a Fintech
In the last few years, the world has had an awakening to the ESG agenda and, consequently, conversations have become more active and urgent around how businesses can intervene to ameliorate a growing number of issues. Within this dialogue are unique considerations for the potentially energyintensive businesses of fintechs, as the digital world counts for 3% of global emissions (more than the global aviation industry). Such considerations have been central to building and developing DDCAP’s automated platform, ETHOS AFP™, to ensure that ESG principles are embedded across its functionality. In 2021, DDCAP committed resource from its existing SRA governance structure to build upon its environmental achievements to date and develop a more formalised environmental policy to support both its commercial activities and internal operations. Whilst DDCAP’s progress in this area had already put it ahead of many of its industry peers, DDCAP recognised that focusing on an environmental strategy ahead of any government or regulatory requirements would enable DDCAP to:
• Increase engagement with staff and raise its profile with potential new hires.
• Reviewing the carbon efficiency of the DDCAP Group websites as well as reviewing email etiquette and in-box maintenance policies to reduce preventable emissions.
AS
EMISSIONS
Conclusion DDCAP has 25 years of experience championing best practice and as part of its commitments made and achievements hard-won, DDCAP recognises that it must continue these proactive steps to ensure that it continues its sustainability journey. For emerging fintech companies, they can leverage their own ability to respond to these issues by partnering with appropriately validated ESG focused initiatives, whose services and actions align with their individual Sharia’a and responsible practices and can be shared with other participant firms practising within our wider industry to create capacity and scale. Together, existing leaders and new market entrants can support the broader Islamic finance industry to make the transition to a more ESG-focused way of business. THIS DIALOGUE ENERGY-INTENSIVE BUSINESSES OF FINTECHS, THE DIGITAL WORLD COUNTS FOR 3% OF GLOBAL
WITHIN
58 Banking and Finance news in the MEA market
Seeing Past Sentiment:
Just over 40% of new and existing homes sold in the three months from April to June 2022 were affordable to families earning the U.S. median income of US$90,000, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Opportunity Index (HOI) 1. This was a sharp fall from the first quarter of this year, when
Getting Ready for a U.S.
Data in a new report from NAR supports the potential for much greater interest from foreign buyers. It shows this group purchased US$59 billion of U.S. existing homes between April 2021 and March 2022, representing an 8.5% increase on the previous 12 months3 .
Further, the Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, dipped 8.6% to 91 in June—measured against 100 being equal to 2001 contract activity levels. Data from the National Association of REALTORS® (NAR) showed transactions shrinking 20% year-over-year2 .
While bleak on the surface, this response by the housing market to the economic conditions is to be expected following rampant price growth over the past few years. Some of this was triggered by the shift to work-from-home models due to the pandemic, leading to less active housing markets across the country becoming flooded with new buyers.
At the same time, even after price drops of 20-25%, home prices in many parts of the U.S. would still be higher than previous levels.
For example, many of these buyers make all-cash offers, so are unimpacted by the Fed rates policy. This positions them better to benefit from the slowdown in price increases in local markets as the intensity of the competition in recent years eases.
While those foreign buyers who resided in the U.S. as recent immigrants or
REAL ESTATE INVESTMENTS
For global investors, meanwhile, the current market dynamics also offer scope for optimism, to the extent that they should consider stepping up purchases.
Housing Reset
International Appetite to Drive New Demand
Walton Global says that despite recent headlines about the prospects for the US housing market mostly offering doom and gloom, spurred by the US Federal Reserve’s (Fed’s) rate-hiking cycle, this shouldn’t deter foreign investors, who can potentially capitalise on slowing price increases and less competition for supply, along with the shift in focus to alternative exit opportunities such as build-to-rent roughly 57% of homes sold were affordable to median-income earners.
In short, rising mortgage rates, high inflation, low existing inventory and elevated home prices have contributed to housing affordability across the country falling to its lowest point in decades.
A mid the many economic and social challenges confronting global markets, the dampening effect on housing sentiment has been inevitable—and palpable. This has been acutely felt in recent months in the US, following the Fed-led tightening of monetary policy coupled with high construction costs.
to invest up to US$300 million in equity in Walton’s BTR line of business that is expected to total up to US$1 billion in real estate assets.
In the meantime, against the backdrop of declining affordability, alternative ways to generate returns from the U.S. real estate sector are emerging. Among them is the built-to-rent (BTR) market, which is starting to gain traction amid the trend
Most recently, in mid-2022, the firm forged a joint venture with Rockpoint, a real estate private equity firm based in Boston, to supply housing solutions in high-growth states. The firm intends
More broadly, even for locally based homebuyers, beyond the barrage of negative news, signs are emerging that the market might soon rebound – or at least level out.
59mea-finance.com holding visas that allowed them to live there accounted for 58% of the dollar volume of purchases, investors from abroad purchased US$24.9 billion worth of existing homes. This was up 13.2% year-on-year.Inaddition. the average (US$598,200) and median (US$366,100) existing-home sales prices among international buyers were the highest ever recorded by NAR— and 17.7% and 4.1% higher, respectively, than the previous year, found the NAR 2022 Profile of International Transactions in U.S. Residential Real Estate. Notably, China and Canada remained first and second in U.S. residential sales dollar volume at US$6.1 billion and US$5.5 billion, respectively, as has been the case since 2013. India, at US$3.6 billion, was next on the Reinforcinglist. why demand by foreign buyers is much less affected by the Fed, all-cash sales accounted for 44% of international buyer transactions, nearly twice the rate (24%) of all existing-home buyers. The NAR data also showed that non-resident foreign buyers (60%) were twice as likely to make an all-cash purchase compared with resident foreign buyers (30%). With this in mind, the John Burns Real Estate Consulting outlook4 could indicate a good entry point for international investors. It is forecasting a housing reset through 2024. “Construction levels are back to 2019, and prices are back to 2020/2021 levels.
“We have been managing our land sales pipeline diligently across all of our assets in both the U.S. and Canada,” said Kate Kaminski, Chief Operating Officer at Walton Global. “We have many other significant projects that are expected to close throughout the year”. towards renting instead of buying. Based on takeaways from the recent John Burns Real Estate Consulting annual strategy summit on BTR, this approach allows for higher density lots, therefore improving return on capital for developers of master plan communities (MPCs)5 Consumer preferences and demographics are a tailwind for the BTR segment, explained John Burns Real Estate Consulting. “Millennials are in family formation years, with many purchasing homes, and others are choosing to remain renters and selecting dedicated BTR neighbourhoods. BTR communities provide flexibility to move, eliminate the repair and maintenance headaches, and give renters a chance to rent a new home in a community near diverse employment bases and goodForschools.”builders and developers, meanwhile, it enables them to diversify their portfolio to include another major consumer segment. Walton Global is expanding into this line of business, having launched its BTR platform in 2021, to incorporate BTR into some of its land assets to offer a wider exit opportunity for investors.
4. “Burns US Housing Analysis & Forecast”, published on July 21, 2022
5. https://www.realestateconsulting.com/the-light-strategies-for-bfr-in-master-planned-communities/
1. since-great-recessionhttps://www.nahb.org/news-and-economics/press-releases/2022/08/housing-affordability-falls-to-lowest-level2. https://www.nar.realtor/newsroom/pending-home-sales-fell-8-6-in-june
“There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilise,” says NAR Chief Economist Lawrence Yun. In line with this, sourcing housing and land selectively is key for investors. This has worked to the advantage of Walton Global’s investors, who received distributions of more than US$137 million in the second quarter 2022 on the back of strong land sales of various assets across North America. More specifically, the firm’s overseas investors accounted for over US$47 million of this from exits across several properties that were sold as a bulk sale or partial sale under a phased takedown structure tied to an option agreement.
More than US$10 million of the total overseas investor distributions were from land parcels across Ontario, with the remainder in the U.S., in states like Florida, Georgia and Texas.
FOR GLOBAL INVESTORS, MEANWHILE, THE CURRENT MARKET DYNAMICS ALSO OFFER SCOPE FOR OPTIMISM, TO THE EXTENT THAT THEY SHOULD CONSIDER STEPPING UP PURCHASES
Robust Investment Rationale
Diversifying the Exit Potential
3. billion-ending-three-year-slidehttps://www.nar.realtor/newsroom/annual-foreign-investment-in-u-s-existing-home-sales-climbed-8-5-to-59-
For Middle Eastern investors, surging global inflation over the last year prompted investors to reassess asset allocations with private markets coming out as the beneficiary. Notwithstanding concerns about deal flow and crowded markets, regional investors turn to alternatives as the class has been a good shelter from volatility over the long-term.Atthe heart of many investors’ alternative strategies is real estate, which despite soaring construction costs and raw materials supply chain problems, is providing many investors with a hedge against inflation due to its return components of income and appreciation. In fact, rising construction costs might limit new supply from entering the market, potentially benefiting owners of existing real estate.
Exploring
I
60 Banking and Finance news in the MEA market
Head of the Middle East and Africa and Senior Executive at Invesco looks at how
Zainab Faisal Kufaishi, Head of the Middle East and Africa and Senior Executive, Invesco
ZainabyieldsinvestmentsalternativetoimproveandhedgeinflationFaisalKufaishi
OPINION PIECE
t took just one short year for the world to emerge from the grip of a pandemic into the clutches of historic inflation and a sudden surge in interest rates. As post-COVID supply chains reconnected between March 2021 and May 2022, OECD consumer prices soared by 9.6%—the biggest and fastest annual jump in more than 30 years1. Now, with the economies of most developed nations entering double-digit inflation, investors are quickly reconsidering their macro assumptions, applying them to new investment strategies as they look for more lucrative returns and higher yield from their Consequently,portfolios.the traditional 60/40 asset allocation model of equities/ fixed income, which many investors had relied on for its stable growth and steady income over the long-term, is being challenged. At a high level, 60/40 portfolios have declined by roughly 17% over the first six months of 2022 2 , and so, with long-term return expectations on the decline in equity and bond markets amid surging inflation and rising interest rates, asset owners are exploring how the alternative asset class can support
Alternatives can be beneficial for investors during times of uncertainty their long-term investment goals and enhance growth, diversify holdings, and generate income. Alternative and private market investments may involve more risk, however that is defined, but can help meet long-term objectives. Alternatives are a broad asset class with a growing spectrum of outcome possibilities. The alternative space covers many different types of assets —including private equity, private debt, infrastructure, hedge funds and real estate—each with its own distinct drivers of risk and return. The unique characteristics of alternative assets allow the investments to behave differently than traditional equity, fixed income and cash investments due to their non-correlative nature to broad market trends. In addition, these assets may offer an illiquidity premium, generating additional return potential that compensates for the longer holding periods. The multifarious nature of the alternative asset class gives investors flexibility during times of high volatility and unfavorable environments, allowing them to manage investment outcomes in a more robust fashion.
Real estate’s appeal comes not only from its low correlation to other asset classes but also because as inflation increases, the correlation of private real estate to inflation tends to strengthen.
4 “Alternatives in 2020,” Preqin, February 2020.
Surging inflation and geopolitical uncertainties present insurers with new investment risks. While many are already investing in alternative investments, insurers are looking to increase their allocations, as alternative asset classes often have inflation riders built-in which can help protect them against these new risks. Lease contracts, for example, may have a rider that increases the income stream from a building as inflation rises, which helps insurers better manage the impact of inflation.
Real estate’s inflation hedge derives from revenue streams that can quickly adjust in an inflationary environment due to lease terms and structures. Different property sectors – retail, offices, industrial parks, residential and self-storagehave different characteristics, so rent increases used to offset inflation could vary in magnitude and timing as the result of the distinct lease structures. Sovereign wealth funds are among the largest investors in alternatives, with allocations to private equity, infrastructure, as well as real estate rapidly increasing over the past ten years, standing at $719 billion at the end of 2020, up from $205 billion in 20113. The growth of alternatives – a market expected to reach $14 trillion by 20234 –shows that the broader investor community is transitioning from a traditional 60/40 allocation and looking to alternatives to hedge some of the macroeconomic risks facing their portfolios. This transition has also seen investors turn to private debt, as alternative credit may provide outperformance during periods of rising interest rates due to structural advantages over traditional, long-duration fixed income. For example, senior loans, which typically have a short duration, pay interest based on floating rate coupons and in this way benefit from rising interest rates. Senior loans are secured via a lien against the borrower’s assets which means that holders are the first ones to be paid in a bankruptcy situation – a consideration for investors balancing their portfolio risk. The lower duration of senior loans combined with higher yields may make them an attractive option. A historical analysis of periods of rising rates since 1993 showed that senior loans performed well 5. Should interest rates continue to rise, loans could be well positioned to outperform longer-duration credit and treasuries. Much like real assets, loans mitigate risk and may deliver greater long-term stability – factors that are also driving change in how another large investor segment - insurers - approach their alternatives exposure.
For all investors, it is vital to understand the characteristics of specific alternative asset classes and not consider alternatives as a standalone portion of their portfolio. Looking more
THE MULTIFARIOUS NATURE OF THE ALTERNATIVE ASSET CLASS GIVES INVESTORS FLEXIBILITY DURING TIMES OF HIGH VOLATILITY AND UNFAVORABLE ENVIRONMENTS, ALLOWING THEM TO MANAGE INVESTMENT OUTCOMES IN A MORE ROBUST FASHION
1 OECD, July 2022. https://www.oecd.org/newsroom/consumer-prices-oecd-updated-5-july-2022.htm
2 Bloomberg, July 2022.
3 https://www.preqin.com/insights/research/blogs/swfs-in-alternatives-in-pursuit-of-higher-returns
5 Credit Suisse, Bloomberg and FTSE analysis, data as of December 31, 2021.
6 Invesco Vision, hypothetical scenarios produced by MSCI Barra, as of Dec. 31, 2021 closely at the specific drivers of risk and return helps investors to align holdings with desired outcomes. Real estate is especially attractive to most because of its positive link to inflation, whereas private debt is attractive because of its inherent credit risk mitigation mechanisms. Private market assets can often generate additional returns through the value added by skilled management, as owners have greater control over their companies in navigating volatile Higher-than-averagemarkets.inflation and a series of interest rate hikes warrant building a portfolio that can sustain nominal returns in a challenging and uncertain market environment. Invesco’s Investment Solutions team conducted an analysis6 that added a small portion of alternative assets to a traditional portfolio to show that diversification towards alternatives can improve outcomes. The analysis looked at the potential impact of a 55/25/20 allocation and showed that optimizing a portfolio by redistributing just 20% of traditional fixed incomes and equities towards private credit, real estate, commodities and loans can improve yields with an optimized portfolio delivering 2.45% rather than 2.09%. The transition to an optimized portfolio could also increase the probability of outperformance during rising inflation and interest rates and reduce downside exposure in the event of a market sell-off.
61mea-finance.com
62 Banking and Finance news in the MEA market
Sally Bou Jaoude, Account Director, Avaya
According to a study by Freshworks, 42% employees in the Middle East and Africa region say their company’s workplace technologies make them appear ‘behind the times’.
But as public and private organisations ramp up efforts to add the personal touch in the digital realm, compliance risks are beginning to rear their heads. This is less to do with potential cyber threats, which are well understood and heavily publicised, but more about inadvertent privacy and compliance lapses.
As digital services become more and more integrated into our daily lives, companies must consider the risks that are inevitably present as they seek to stay compliant with customer data. The good news is that, with the right tools, it’s possible to unlock the full potential of digital communications and stay on the right side of regulation.
The study by Freshworks also reported that nine in ten employees in Middle East and Africa region are frustrated by their workplace technology.
Keeping compliant as the UAE’s workforce defaults to digital Sally Bou Jaoude Account Director, Avaya explains that as organisations add personal touches in the digital realm, keeping to compliance requirements becomes more of a challenge
Having recently fired a trader as part of a compliance sweep, a major global bank reportedly reminded staff that apps like WhatsApp should not be used to engage clients, as unauthorised channels like these fell outside regulatory obligations. Whether any data is compromised is a moot point.
While companies must provide employees with the necessary skills to carry out their roles, there is also a constant need to educate teams on their responsibilities in order for them to remain compliant.
Consumer-grade smartphone applications are extremely common in professional contexts, and personally identifiable information (PII) and other sensitive data are regularly shared through these platforms.
OPINION PIECE
It’s difficult to say whether these compliance breaches are malicious; some can be attributed to negligence or happen because of roadblocks that employees encounter while trying to do their jobs serving customers, leading them to seek out other options.
Employees interact and converse more effectively when they have access to a streamlined communications platform, and the risk of data misuse is reduced.
An alternative route
Bringing together CX and compliance But it takes more than flashy apps to connect with customers to deliver the best experience - increasingly the make-or-break factor for a business. It entails enabling digital tools to enhance collaboration, streamline procedures and tasks, and establish a “safe space” where employees and clients can communicate without worrying that their information and conversations will be made public.
When a wide range of applications connect to a workplace’s network, digital environments can become complicated under the current hybrid work setup, making it even more difficult for management to monitor the entire perimeter to prevent any breaches of compliance obligations. Employees can perform their jobs as intended, managers are given assurances about how information is handled, and customers are given confidence that their personal information will remain safe when all channels for communicating with customers are combined within a secured and authorized environment.
To reduce uncertainties and grey areas, the way forward also entails extending automation and artificial intelligence (AI) affordances to employees so that they can carry out judgment-based work and check that regulations are being followed.
A s one of the world’s most connected countries, citizens of the UAE have high expectations from both online services and experiences delivered in brick-and-mortar stores. We find it difficult to wait in queues and expect our purchases as soon as possible. We want the businesses we interact with to be aware of our needs so they can address them proactively. We expect problems to be solved in real time, the first time, and we dislike repeating ourselves.
CX Forum Free WorkshopsFintech1000+ Startup X Investor Meetings 100+ leading Financial Institutions & Fintechs 110+ SpeakersGlobal Supernova Startup Pitch Competition Digital SummitFinanceGETYOUR TICKET NOW AT FINTECHSURGE.COM The MENA region’s most impactful and visionary event for the regional Fintech ecosystem Strategic Partner Gold BronzeSponsorsSponsors 10-13 OCT 2022 ORGANISED BY #FINTECHSURGE DUBAI WORLD TRADE CENTRE
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