Even as the global banking sector seems to be feeling the pain of rising interest rates, a recent KPMG report shows that the UAE banks are enjoying rude health.
In its annual UAE Banking Perspectives report, KPMG said the banks have benefited from inflow of capital and foreign investment in various sectors; government’s commitment to regulatory reforms, and growing demand for digital financial services.
The sector has enjoyed a promising year and is expected to maintain a stable outlook in 2023.
KPMG listed the robust operating and financial performance of top 10 UAE banks, with a 31 percent increase in their net profits. The cost-to-income ratio during the year also improved on average by 1.8 percent and banks maintained sufficient capital levels well above the minimum regulatory requirements.
The report also found that the banking sector’s total assets has increased by 10.6 percent year-on-year driven by strong growth in deposits, loans, and advances.
Abbas Basrai, Partner and Head of Financial Services, KPMG Lower Gulf, said: “The UAE’s vibrant economy and its favourable business environment has attracted a significant amount of foreign investment, with banks benefiting from large pools of capital and high net worth customers the UAE is attracting. One of the major factors contributing to the sector’s stability is the government’s commitment to regulatory reforms. Measures taken by the Central Bank of the UAE to strengthen governance frameworks have led to increased transparency and accountability.”
The study said banks are recording an increase in the cost of compliance to manage risks associated with regulatory reform. From 2019 till early 2022, the Middle East recorded a 63 percent increase in the size of its compliance teams.
The total projected cost of financial crime compliance in the Middle East is $4.2 billion in early 2022, with the UAE representing a sizeable chunk of almost 40 percent of this at $1.7 billion. It is anticipated that compliance functions will implement technology platforms to maintain and monitor regulatory obligations and enable compliance risk assessments.
KPMG partnered with DataEQ, a social media analytics company, to analyse key drivers of consumer satisfaction and reported that Industry Net Sentiment improved from last year – based on 96,321 tweets about seven UAE banks during the whole of 2022. The UAE banking sector’s industry aggregate was -7.4 percent, an improvement of seven-percentage point from -14.4 percent last year.
Technological advancements in the UAE
To compete in a dynamic environment, UAE banks are embarking on digital growth strategies, like cloud adoption. This is expected to provide benefits including scalability, flexibility, faster time-to-value, and cost effectiveness.
Consumer demand is also driving banks to deliver technology-enabled services and some of the larger banking institutions are exploring the metaverse as a new channel to provide financial services to their customers and connect with the larger banking ecosystem.
The biggest pain for customers was the customer services. Some of the points that forced them to resort to social media were slow turnaround time, non-responsiveness, and staff competency issues. Downtime emerged as the biggest risk factor, as customers complained about their inability to access online banking, malfunctioning mobile apps, and faulty ATMs.
The report also showed that several banks are now deploying machine learning (ML) and artificial intelligence (AI) for financial crime detection. Advancements in technology and data will also result in new ways to know-your-customer (KYC) and customer due diligence (CDD) in the next ten years.
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