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As we enter an age of tremendous interconnectivity, many banks are keen to digitalize their customer experience, their services and their products, and expand beyond the confines of their traditional bricks-and-mortar service models.

We have observed a healthy trend of increasing banking profitability over the past few years, with growth of 13.9% in net profit among the top ten UAE banks. The primary reason appears to be stronger non-interest income performance and certain one-off events. The initial, conservative view that was widespread when IFRS 9 was implemented is gradually disappearing.

On a more somber note, it may be advisable for banks to reassess their disclosure obligations regarding business risks related to the potential impact of Covid-19 within the context of their local regulatory requirements. The Central Bank of the UAE (CBUAE) has been proactive in rolling out stimulus packages and has announced a comprehensive AED 256 billion ‘Targeted Economic Support Scheme’ to contain the repercussions of the coronavirus pandemic.

Despite the challenges presented by the pandemic, we are seeing an increasing focus on open, connected banking: successful organizations tend to be those that put their customers at the heart of their strategy. The concept of ‘banking the ecosystem’, which is an interconnected set of services where customers can fulfill a variety of needs in a single integrated experience, may represent the cornerstone of digital banking in the future. Banks across the UAE are also embracing blockchain, which offers benefits including operational efficiencies, reduction of intermediary costs, and a culture of transparency.

Keeping pace with regulatory upheaval

LIBOR’s decommissioning may have a significant impact on business and support functions of financial institutions: worldwide, almost USD 400 trillion worth of contracts are linked to LIBOR across the spectrum of financial instruments.

As regulatory bodies advocate cyber security measures as a priority, progressive banks recognize that it is not merely a ‘technology problem’ but a wider business challenge that requires business ownership and strategic development. They often have information-security risk management processes integrated with the enterprise risk management framework. Banks are also using third parties to facilitate technology implementation, in an effort to decrease costs, improve customer experience, and enhance their competitive edge.

Meanwhile new tax regulations introduce a legal requirement for UAE entities that perform certain “relevant activities” to locally maintain adequate economic substance. In the midst of this wave of regulatory reform, equally important are robust corporate governance and effective talent management.

We believe the future is ripe for both growth and transformation. Banks that effectively leverage their digital assets, bolster cyber resilience and manage third-party risk will likely reap the benefits of increased revenue streams, regulatory compliance and enhanced operational efficiency.

Innovation and technology

Regulation and risk

Culture and sustainability

Download the Banking Perspectives Report 2020