Dubai: The UAE’s banking sector and the economy are set for a strong rebound in the second half of the current year with sustained growth trends continuing into 2022, Ahmed Abdelaal, Group CEO, Mashreq told Gulf News.
In a wide-ranging interview, the Mashreq Group CEO spoke about the pandemic’s impact on the economy, key sectors and the overall outlook.
“We are still fighting a pandemic. Forecasts are difficult by in these kinds of situations. From what I see, things are improving. We are moving into a stable domain right now. Sentiment is improving, core fundamentals of the economy are also showing healthy signs,” said Abdelaal.
The latest Central Bank of UAE (CBUAE) forecasts of UAE’s GDP growth reinforce Abdelaal’s take on the economy and the banking sector.
The CBUAE has projected the UAE’s GDP growth at 2.1 per cent for this year and is forecast to double to 4.2 per cent in 2022.
“We expect the second half of this year to show a significant improvement over the first half with some main sectors returning to stability. In addition, the data on international investment flows into the country are also very positive,” said Abdelaal.
As a veteran banker, he has a clear understanding of the needs of both retail, SME and the corporate client community, and enjoys a proven track record for delivering complex banking solutions. Ahmed holds an MBA from London Business School, University of London.
While economic fundamentals are key to investor confidence, Abdelaal said factors such as ease of doing business and access to the market are key in attracting foreign investments.
The efficient management of the pandemic has also come as a big factor in boosting investor confidence in the country. Global investors see this as a sign to stability.
“The UAE, over the past few months has been working hard to open up the access points for the regional global investors. The facilities the country has offered, whether in terms of liberal residencies, 100 per cent ownership and reduced costs in terms of setting up a business clearly have played a key role in attracting investments into the country,” he said.
“There has been a big improvement in the domestic economic sentiment with every aspect of business and social life is returning fast of pre-pandemic normalcy,” he said.
The way the pandemic has been managed is having a positive impact on the real estate sector. The fast and systematic handling of the health crisis is attracting a new set of affluent investors to the real estate sector.
The influx of global demand in the property sector is the biggest vote of confidence in the economy.
“This is a sign that global investors are recognising the stability the UAE can offer. Of course, the changes in the residency rules and various classes of long-term visas too are helping investment flows,” he said.
In the past 18 months UAE’s banking sector has come a long way from the initial shock of the pandemic with stronger capital and liquidity positions.
“Looking back, clearly banks are in a much better position compared to this time last year. Frist of all, the way that the regulators intervened has helped. Additionally, the banks too have managed this crisis very well,” said Abdelaal.
The way the banking sector faced this crisis compared to the global financial crisis has completely different. Overall, the responsiveness to the crisis has been fast and efficient. Banks had in fact responded quickly with some relief measures to their client even before the regulators announced comprehensive packages.
“As far as Mashreq is concerned, we already had initiated help for our clients even before the Central Bank announced its Targeted Economic Support Scheme (TESS). Of course, the TESS added great deal of depth to the relief programmes throughout the country,” said Abdelaal.
Data shows liquidity and capital structure of the financial sector a whole has remained far stronger compared to 2008 when global financial crisis hit the sector. Although most banks were prepared to withstand the crisis on the standalone basis, the timely central bank support eased pressures on banks and other key sectors.
SMEs represent more than 94 per cent of companies in the UAE, employing about 86 per cent of the country’s private sector workforce, and generates more than 50 per cent of the non-oil GDP.
Despite the initial shock of the pandemic, Abdelaal said the banking sector has remained largely supportive to SMEs.
“I am not a position to talk about the market as a whole. However, Mashreq has been and remains supportive to our SME clients. We have increased our SME portfolio by 140 per cent in 2020, even amid the crisis,” he said.
Mashreq’s NEOBiz a digital banking solution for SMEs came in handy in reaching support to this crucial sector.
“NEOBiz introduced in 2019 has been one of the most successful ventures for us to support this sector. Today, we have more than 10,000 clients who have been on-boarded over the past 18 months,” he said
So far, Mashreq has entered into partnership with 40 free zones. In addition, the bank has partnerships with 25 SME ecosystems that include the likes of Amazon and others to support this segment.
The CBUAE has indicated that it will unwind some of the pandemic related support measures going forward. While the withdrawal of direct liquidity support and regulatory forbearance measures are expected to see some spike in non-performing assets, the phased withdrawal of support is expected to allow banks to somewhat spread the provisions over a longer period.
“The central bank has taken a gradual approach to exiting the support programme and this has been done in consultation with the banks who have expressed confidence that they are strong enough to manage their finances and continue to support the economy,” said Abdelaal.
While the banks in general have been prudent in making adequate loan loss provisions in the early days of the pandemic, he said the prospects of full or partial recovery of these provisions will be subject to many factors such as legal modalities, economic conditions, and client’s ability to redeem their exposures.
“These are factors that are very difficult to forecast. But the assumption always is that we try to work with clients to achieve recovery. Whether is it is doable, especially during a crisis of this magnitude, it is very difficult to predict,” he said.
Branch rationalisation and digitalisation
Mashreq has been one of the first banks in the region to opt for digitalization. Looking back, the bank has come a long way in digital transformation from the brick-and-mortar model to a predominantly digital model.
“Going digital is an existential choice for the banking sector. If we didn’t move in that direction we will be out of the game. Brick-and-mortar model is a thing of the past. Digital is the future,” said Ahmed Abdelaal, Group CEO, Mashreq told Gulf News.
The latest data from the CBUAE validates his stand. The UAE banks are fast embracing digitilisation and are shrinking and or are redefining the branch-based banking services.
Abdelaal sees digital solutions are new norms as the new generation has no tolerance for paper-based documents or wet signatures. In addressing the new customer needs, he said it is imperative to build platforms that speaks their language and the future of banking all about creating experiences rather than creating new products.
“For us it has been a very natural evolution. We have reduced our number of branches for 34 to 8 as we speak, and this process will continue. Direction of our travel is NEO and NEOBiz and everything will eventually come under those two verticals,” he said
Companies are now able to digitally create a single KYC [know your customer] record (which will be authenticated with electronic ID) to simultaneously share data with their various financial institutions. The block-chain based solution speeds up the time required to acquire a bank account number for newly registered companies and reduce the burdensome and costly requirements of managing KYC data for already registered companies.
More than 80 per cent of Mashreq’s new clients have come through digital channels. With solutions like Neo for consumer banking and personal banking and NEOBiz for business banking. Even when it comes to wholesale banking for the mid and large cap companies, the bank is moving to digital platforms.
“We are moving into open banking platforms where we can hook up our large corporate clients with a complete eco system that integrates with different partners based on API [Application Programming Interface] haring that will make banking experience tailor made to the needs of each individual corporate,” he said.
In addition to creating a new banking experience for corporate clients, the new approach resolves balance sheet limitations when it comes to big ticket funding and or fund raising. By creating an eco-system in collaboration with larger banks, clients are offered a one stop shop for all their needs ranging from wholesale banking including, investment baking, trade finance, global payments and transaction tracking services in collaboration with other global banks.
Going forward, Abdelaal sees blockchain transactions and distributed ledger-based payment solutions as future of trade finance. Although crypto currencies are controversial currently, he expects appropriate regulatory mechanisms to evolve and the technology to become the backbone of trade finance.
“The future is about connecting suppliers to buyers and buyers to end consumers. Building these bridges is going to be core to what financial institutions do in the future,” said Abdelaal.