Dubai: Financial institutions that leverage technology and data to deliver may be in a better position to drive business growth and overcome disruption caused by the global COVID-19 pandemic, according to KPMG’s UAE Banking Perspectives report.
According to KPMG study the UAE banks will have to closely examine their business continuity plans, in light of the current Covid-19 threat.
“Banks and other financial institutions are faced with tough times ahead, but technology can help mitigate negative effects for customers and business,” said Abbas Basrai, Partner and Head of Financial Services, KPMG Lower Gulf.
“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.”
The Central Bank of the UAE (CBUAE) has been proactive in rolling out stimulus packages and has announced a comprehensive Dh256 billion ‘Targeted Economic Support Scheme’ to contain the repercussions of the pandemic.
Banks and other financial institutions are faced with tough times ahead, but technology can help mitigate negative effects for customers and business.
The CBUAE is allowing banks to free-up their regulatory capital buffers to boost lending capacity and support the UAE economy; all banks operating in the UAE will have access to loans and advances extended at zero cost against collateral by the CBUAE.
All banks will be allowed to tap into a maximum of 60 per cent of their capital conservation buffer, and those designated as systemically important will be able to use 100 per cent of their additional capital buffer for matters of systemic importance.
The CBUAE is also reducing the amount of capital banks have to hold for their loans to SMEs by 15 to 25 per cent. This change, which is broadly in line with the minimum standards set by the Basel Committee, will facilitate further access of SMEs to financing, and the CBUAE will also revise the existing limit which sets the maximum exposure that banks can have to the real estate sector. Banks will be allowed to increase it to 30 per cent, but will then be required to hold more capital.
“Major banks in the UAE have been proactive in providing financial relief to customers, in line with the CBUAE’s Dh256 billion economic stimulus package,” said Emilio Pera, Partner, Head of Audit KPMG Lower Gulf.
The Dubai and Abu Dhabi governments are also being proactive in rolling out stimulus packages with the intention of optimizing costs and supporting businesses.
The packages include a number of initiatives aimed at reducing the cost of doing business and simplifying business procedures, especially in the commercial, retail, external trade, tourism, and energy sectors.
The KPMG report showed that 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. This integration of services may represent the cornerstone of digital banking in the years to come, creating a differentiated experience that can improve customer satisfaction, increase loyalty and generate additional revenue streams.
According to KPMG study, the banking industry in the country the rapidly evolving customer expectations and increasing regulatory scrutiny are putting pressure on UAE banks to modernize every facet of their operations. Many are structuring their businesses in new and exciting ways and are recognizing customer experience as a source of commercial value rather than as a differentiator versus their competition.
The report also observed a healthy trend of increasing banking profitability over the past three years, with total growth of 13.9 per cent in net profit among the top ten UAE banks in 2019. 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 CBUAE has been very supportive of the financial services sector in light of the disruption caused by the pandemic. “But the banking sector may have to rely on a combination of external support and internal resilience-building to emerge unscathed,” said Basrai.