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UAE retail banking revenues set for steep rise

Customers had increased trust in their bank during the Covid crisis than at the start of the pandemic in 2020, according to Boston Consulting Group

Published: Tue 13 Dec 2022, 5:14 PM

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In the third quarter, the top 10 UAE banks’ profitability jumped on the back of higher core interest income despite a slowdown in loans and advances growth.

In the third quarter, the top 10 UAE banks’ profitability jumped on the back of higher core interest income despite a slowdown in loans and advances growth.

Retail banking revenues in the UAE are expected to grow at a compound annual growth rate of 6.4 per cent until 2026, a steep rise from 0.1 per cent from 2016 to 2021, according to Boston Consulting Group.

The economies of the GCC are also poised to keep a similar growth momentum with an estimated 8.8 per cent CAGR surge till 2026. The growth will be driven by recovery in oil prices combined with increased interest rates and an increase in tourism.

The report noted that customers had increased trust in their bank during the Covid crisis than at the start of the pandemic in 2020.

“Customers want their banks to feel like a ‘good friend’ that they can turn to for honest advice and a ‘school’ where they can obtain financial guidance.

Abdulaziz Al Ghurair, chairman of UAE Banks Federation, forecasted a positive and robust growth of the UAE banking sector, and predicted that the banking industry would grow faster than the macroeconomic rate with bank revenues, after risk provisions, to reach more than $25 billion by 2030, a 50 per cent increase over current revenues establishing an excellent financial standing. He noted that the UAE banks are well-capitalised and profitable, which are prerequisites to enhancing the stability of the sector in the long term.

In the third quarter, the top 10 UAE banks’ profitability jumped on the back of higher core interest income despite a slowdown in loans and advances growth.

According to the BCG report, when it comes to keeping personal data secure, customers trust their banks even more than their doctors. Furthermore, customers are willing to disclose more data to their banks if they value a new service or feature, said the report.

The report said one-quarter of retail banks surveyed globally report that ESG (environmental, social and governance) is a primary focus area for their digital transformation, and another 38 per cent say that ESG is a key criterion in selecting and prioritizing digital transformation initiatives.

In addition to ESG, through the five years from 2021 to 2026, payments, mortgages, and deposit products are likely to drive banking revenue growth in the GCC retail banking sector. An accelerated pace of digital payments and e-commerce adoption in the wake of Covid-19 will further benefit payment revenue growth.

“Sustainability is rapidly reshaping competitive advantage, remaking whole industries, and generating new waves of growth. It has long been a part of good business—but in today’s evolving marketplace, engaging with customers and other stakeholders on ESG issues is a matter of rising urgency,” said Bhavya Kumar, managing director & Partner, BCG.

“In addition to promoting sustainable behaviors by customers, banks can play an instrumental role in contributing to the UAE’s ambitious agenda for Sustainable Development. Through ESG-related products, banks can shape the sector and the country’s leap forward.”

“The UAE has deployed extensive efforts towards driving sustainability forward in the country under the framework and in alignment with the UAE Green Agenda 2015-2030. Retail banks have a critical role in contributing to the vision of the nation. To ensure continued success, banks must constantly strive to look to markets where they have unique advantages to create offerings and build business models to leverage these advantages.” said Martin Blechta, principal, BCG.

— issacjohn@khaleejtimes.com



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