|09 April, 2020

UAE banks driving tech, data can overcome COVID-19 disruptions fast

The top ten UAE banks have seen a total growth of 13.9% in net profit in FY 2019

Image used for illustrative purpose. Woman filling form at bank counter.

Image used for illustrative purpose. Woman filling form at bank counter.

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Financial institutions that leverage technology and data may be in a better position to drive business growth and overcome disruptions caused by the coronavirus pandemic, KPMG said in its annual UAE Banking Perspectives report.

“Banks and other financial institutions are faced with tough times ahead, but technology can help mitigate negative effects for customers and business,” Abbas Basrai, Partner and Head of Financial Services, KPMG Lower Gulf said.

“Banks that effectively leverage their digital assets, bolster cyber resilience and manage third-party risks will likely reap the benefits of increased revenue streams, regulatory compliance and enhanced operational efficiency,” Basrai added.

Banks are increasingly exploring 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. According to KPMG, this integration of services may represent the cornerstone of digital banking in the years to come.

Rapidly evolving customer expectations and increasing regulatory scrutiny are putting pressure on UAE banks to modernize every facet of their operations, according to the report.

“Looking ahead, the report states that UAE banks will have to closely examine their business continuity plans (BCP), in light of the current Covid-19 threat,” KPMG said.

The report also noted a total growth of 13.9 percent in net profit among the top ten UAE banks in FY 2019. According to KPMG, the primary reason appears to be stronger non-interest income performance and certain one-off events, with revenues flowing in from fee income and lower credit provisioning.

The Central Bank of the UAE (CBUAE) has announced a comprehensive 256 billion ‘Targeted Economic Support Scheme’ to contain the repercussions of the pandemic.

KPMG also noted that the CBUAE is allowing banks to free up their regulatory capital buffers to boost lending capacity and support the UAE economy. Furthermore, all banks operating in the UAE will have access to loans and advances extended at zero cost against collateral by the CBUAE.

“The CBUAE has been very supportive of the financial services sector in light of the disruption caused by the pandemic,” Basrai said.

“But the banking sector may have to rely on a combination of external support and internal resilience-building to emerge unscathed. Digital transformation and regulatory compliance are likely to play a pivotal role in enabling banks to navigate the challenges that lie ahead,” he added.

Cybersecurity continues to emerge as a priority for UAE banks. Progressive banks are integrating information-security risk management processes with the enterprise risk management framework and are also using third parties to facilitate technology implementation in an effort to decrease costs, improve customer experience, and enhance their competitive edge, according to the report.

“UAE banks are also embracing blockchain, which can offer benefits, including enhanced operational efficiencies, reduction of intermediary costs, and a culture of transparency -- without the traditional potential risk of inaccurate information transfer,” KPMG said.

(Writing by Gerard Aoun; Editing by Seban Scaria)

(gerard.aoun@refinitiv.com

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