MG: Banks in the country have posted strong positive results in 2019 against the backdrop of a widely acknowledged belief that the economy is slowing down and business and commercial activity is dropping too.
However, banks have found a way to maintain and grow their businesses but we should expect the environment to become more challenging in the near future.
Despite the increasingly grim outlook for the global economy and flat crude oil prices, the region is reasonably stable.
Global issues are, however, influencing the regional economies by setting the mood and the tone and this is affecting sentiment. As we know, sentiment is something that businesses look at to guide their growth prospects. Also, in the background geopolitics is fuelling uncertainty in the market. There are political issues in the United Kingdom and the United States and regional tensions that are affecting the global economy, and these ripple effects are being felt all over the world including our region.
How would you sum up the growth of Islamic banking in the UAE?
MG: Judging by the financial results, including our own, players in the Islamic banking sector have had a very successful few years. As long as Islamic banking has an appeal, which goes beyond purely faith-based banking, the sector will continue to grow.
Thinking more broadly, whether you are an Islamic bank or a conventional bank, all financial institutions are competing with each other on a fairly even playing field apart from scale and size.
Islamic Banks have a unique opportunity to present the market with an alternative and appealing proposition built to serve those that prefer to use sharia compliant products and services and even those who may not have that as their guiding principles but are attracted by the protection that it offers and the range of services and products that might better suit their needs.
Have Islamic banks promoted the idea of ethical banking effectively?
MG: Perhaps not so effectively. But it’s fair to also say that ethical banking is not restricted to Islamic banks only. Even conventional banks are facing the same opportunity.
Embracing new expectations of customers and clients around ethical banking be it in the form of supporting and protecting the environment or indeed any relevant social cause is one differentiator that will become more important in the future whether one is an Islamic or conventional Bank.
How do you see the transformational journey of Noor Bank?
MG: 2 years or so ago we embarked on a major transformation journey.
We developed a 3 year strategy through discussion and debate and brought sharper focus to creating a framework within which the transformation would be delivered and executed.
Through extensive consultations with a wide cross section of our staff we created our Vision, Mission, Purpose and Values. These became the pillars around which we built our transformation agenda and also started work on defining and creating our unique Noor culture.
We also engaged extensively with our customers and even those that weren’t our customers to understand what they wanted from their bank. From this we developed customer journeys and began the process of delivering solutions and services that customers told us they would like. The delivery of these services and products was to be underpinned by a digital and digitisation emphasis that would create efficiencies inside the bank and outstanding experiences for our customers.
We have made solid progress and continue to innovate to serve our customers better.
What are the major trends defining the banking industry?
MG: Broadly speaking, the two biggest things in the banking sector are digitisation and threats from non-industry participants like Telcos and Fintechs. Every bank that has an eye to the future knows that without digital transformation there is no relevance. Innovation and speed to market remain the basis through which differentiation can be created.
At present the industry is caught between investing for the future and catering to the varied demands and preferences of the customer base. Many customers prefer the convenience of digital banking but also want to have access to physical infrastructure like branch’s and people. Others prefer to deal only with branch’s for all their banking needs.
We expect the full transformation to digital to still be several years if not decades away. However, the journey has commenced and customer needs will dictate the pace of the transformation.
As regards the looming threat of non-industry participants the industry has and will continue to find ways to partner with the new entrants to create win-win outcomes for themselves and customers.
What is your opinion on the looming risks and operational challenges?
MG: From the customer’s point of view, expectations are going up and some of those expectations could be considered to be quite demanding. The whole nature of banking is changing.
The expectation is for banks to provide clients and customers access to a digital eco- system that can satisfy all their daily needs. Whilst this is eventually going to create loyalty and happy customers the transition is costly and complex.
As banks have to continuously invest in both brick and mortar branches and digital platforms, their margins will come under pressure.
Also, financial regulators are imposing much tougher and stringent requirements on banks. The cost of compliance is increasing and banks are increasingly having to balance growth within a more stringent capital and liquidity regime.
KYC and AML standards are also increasing and the industry has to invest in both skills and digital solutions including Artificial Intelligence and Machine Learning to manage volumes and develop behavioural insights.
Margins will therefore continue to tighten and a new business model will have to develop where banks are rewarded through a structure that recognises value creation and partnerships for delivering the best outcomes for clients and customers.
How do you see the evolution of IT infrastructure in your bank?
MG: We decided early on while developing our strategy that technology transformation without a cultural shift would be less than effective.
The cultural change was to get each and every one of our colleagues, regardless of what job they did, to embrace the goal of making the bank digital to its core. By that we meant that every activity, process and problem statement would require an active discussion on how technology could help to create better processes and better experiences for our clients and customers.
The approach to run projects under the agile methodology meant that we set ourselves short term goals to deliver longer term and often complex multi-year programmes in sharp short term sprints that showed regular progress internally but most importantly to our customers.
We are still evolving but have made strong progress on our journey to being digital to the core.
What kind of threat do Fintechs pose to banks?
MG: This debate about the threat from Fintechs to banks started about 10 years ago when it was said that banks might become irrelevant as Fintechs and non-industry participants made inroads into the banks traditional products and services at lower cost and greater convenience - this has not happened. Yes, Fintechs are more nimble compared to banks, and they can take a few high volume low cost parts of a bank’s business such as payment or remittances but the threat of making banks redundant has and will not likely happen.
Banks are either buying Fintechs or working with them as partners not because of a the threat they pose but rather due to due to the skill sets and solutions capabilities that Fintechs bring to the table.
This is also our approach and we have already partnered with Fintechs to help us solution for our client segments on a targeted basis.
What you have to say about the industry’s outlook?
MG: Global economic weakness and political uncertainty in many parts of the world will surely have an impact on the neat term prospects for our industry. Falling interest rates will also dampen banks profitability. So we should expect the next few years to be more challenging than the past few as the economy here too adjusts to ironing out structural imbalances and creating greater value from investments.
© Noor Bank 2019