In recent years, the geopolitical situation in the Middle East and North Africa (MENA) region has slowed economic growth – a scenario that was exacerbated further by cuts in oil production. Thankfully, we are now seeing a turnaround: in 2018, domestic reforms and rising external demand prompted a long-awaited boost to business and consumer confidence. In turn, economic expansion is now being witnessed among some of the region’s oil importers. According to the World Bank, growth in the MENA region is forecast to have accelerated to 3.1 percent in 2018 and will increase further to 3.3 percent in 2019.
In 2018, domestic reforms and rising external demand prompted a long-awaited boost to business and consumer confidence
Against this backdrop, Gulf economies are expected to take the lead in terms of growth in the region, thanks to an easing in fiscal adjustments, greater infrastructure investment and ongoing reforms to promote non-oil activities. In light of these upcoming developments, World Finance spoke with Mohammad Nasr Abdeen, Group CEO of Union National Bank (UNB), about the UAE economy and the financial sector’s role within it.
How is the UAE’s economy faring amid regional pressures?
It’s relatively diversified, with a steady increase in the contribution of the non-oil segment in recent years. Driven by both oil and non-oil sectors, the UAE economy is expected to grow substantially at 4.2 percent in 2019, while the fiscal deficit will shift to surplus due to higher revenue from both oil and taxation.
Hosting Expo 2020 will further drive the economic activity, as the event will attract a large number of visitors, thereby boosting private consumption and services. Construction will gradually strengthen too, in response to private and public demand growth, as well as increased export-related investments.
Despite rising operating costs for businesses after the introduction of VAT, the UAE will continue to benefit from its ‘safe haven’ status. Off the back of these factors, real GDP growth is expected to average 3.5 percent over the 2018 to 2019
How strong is the competition within the UAE’s financial sector?
There is increasingly intense competition among the 49 banks serving the population of nine million. Lower oil prices have resulted in slowing economic and credit growth, thereby reducing lending opportunities. Credit penetration is quite high and the macroeconomic outlook is challenging, resulting in lower margins. The room for meaningful growth for such a large number of banks is therefore limited.
Consolidation of the banking system will diminish the competitive pressure for funding and increase banks’ revenue base, realising synergies through economies of scale and a lower concentration of risk within loan portfolios. It will also increase banks’ competitiveness, reduce pressure on their funding costs and increase their ability to meet sizeable investments. Furthermore, the experience of bank mergers in the UAE has proved that well-executed deals can have desired results.
What other challenges remain in the sector?
Factors such as the implementation of VAT at the beginning of 2018 have, to a certain extent, impacted domestic consumer spending, while the recent strengthening of the US dollar is reducing the external competitiveness of the UAE’s economy, especially in its tourism sector. In addition, tightening monetary policy, higher fuel prices and rising interest rates are impacting activities across all sectors. Fortunately, these challenges are not impacting the UAE’s financial stability: the country is thought to have generated AED 12bn ($3.2bn) in VAT revenue during 2018 and is expected to generate a further AED 20bn ($5.4bn) in 2019.
What’s in store for the coming years?
In September last year, the Abu Dhabi Government announced an economic package of AED 50bn ($13.6bn) to stimulate the tourism sector and create new jobs in a bid to boost growth in the area. The Dubai Government also announced its own set of economic initiatives that include attracting more foreign investment and plans to increase the number of visitors to the emirate. Moreover, the Expo 2020 event in Dubai will drive GDP growth between 2020 and 2021 by boosting job creation, consumption and tourist numbers.
Recovery of the real estate sector is expected in 2019, helped by decisions such as mandatory unified leasing contracts and the classification of all non-freehold plots to improve transparency across the sector. Moreover, the move to grant 10-year residency visas for professionals, investors, scientists and meritorious students, in addition to a new law allowing 100 percent foreign ownership of companies, is expected to have a positive impact on the property market and the economy in general.
What role do employee engagement and wellbeing initiatives play in the sector?
Employee wellness is of paramount importance in propagating a culture of engagement across an organisation. An organisation’s workforce is its most important stakeholder and prized asset. In addition to providing the basics, such as training, development, performance objectives and rewards, employee wellbeing is crucial to an organisation’s success. Healthy employees are more productive and engaged, therefore a focus on quality of life, work-life balance, physical and mental health, and social, financial and spiritual wellbeing leads to a highly committed workforce.
Can you tell us about UNB’s employee engagement and wellbeing initiatives?
Over the years, UNB has consistently met its goals and objectives with regards to employees, customers and shareholders. However, in today’s dynamic and competitive business environment, it has become imperative for UNB to take a transformational approach to ensure its continued success in the years to come.
With the launch of its award-winning HR transformation strategy, Tahfeez, UNB has developed a value proposition with a host of employee engagement and wellbeing initiatives. Some examples are the Steps of Giving initiative, the New Me wellness campaign and monthly employee wellbeing events. These initiatives have been well received and have inculcated a sense of belonging and encouragement among UNB’s workforce.
Why are such initiatives important for the health of the economy more generally?
With a focus on creating happiness and wellbeing across the general population and workforce, the UAE Government has created the Minister of State for Happiness and Wellbeing cabinet position, and has launched the National Programme for Happiness and Positivity. In line with the lead taken by the government, public and private sector organisations have rolled out various initiatives that help drive sustainable productivity and profitability.
What impact has AI and digitalisation had on the banking sector?
The banking landscape is changing at a rapid pace. The fintech revolution is transforming the way customers engage with their money and financial services providers. From social and mobile capabilities to the storage and analysis of customer data, banks are now compelled to rethink the way they do business in order to deliver a better customer experience.
Customers now want a user experience that is specific to their needs. A bank’s success in the digital economy therefore lies in the data it accumulates and processes about its customers. The future is real-time and data-driven. By extracting meaningful insights, banks can create customer segmentation and deliver innovative products in a way that appeals to each individual customer.
What opportunities do they present?
Along with the IT industry, the banking industry has been among the biggest job creators over the past two decades. We are now at a point where technology is more efficient than humans, which is why AI is playing an increasingly important role in automating processes within banks. For instance, AI-powered bots are replacing manual processes, performing the same tasks in a fraction of the time and with 100 percent accuracy.
Traditional teller functions, Know Your Customer details and updates, account services, and salary processing are all going digital. The need for face-to-face interaction is therefore decreasing, but there is an opportunity in reskilling employees towards customer relationship management (CRM). We are also presented with new opportunities in terms of business models that are mobile-first and AI-driven. Due to the meaningful and actionable data available, there is a paradigm shift in lending models, whether it be instant loan approvals or peer-to-peer lending.
How have these technological developments impacted UNB?
Besides adopting emerging technologies, UNB regularly tests new services within the bank. The sales process has now turned digital with the implementation of a mobile-enabled CRM system. AI is being used in predictive analyses of customer transactions, account data and social data in order to make real-time, context-specific offers.
Similarly, some processes have been enhanced with robotic process automation. There’s smart recruitment through robotic interviews, the digitalisation of the onboarding process, welcoming clients at the Customer Care Unit through UNB Robo, chatbot for HR policies, and process automation for information technology and operations services.
Do you have any exciting plans involving these technologies that you can tell us about?
The UAE Government has created a Ministry of Artificial Intelligence to invest in the latest technologies and apply them in various sectors. Taking a cue, UNB has established a dedicated Digital Banking and Innovation team that is working with fintech accelerators in the region to identify emerging technologies and opportunities.
The bank is also working closely with government entities in the areas of blockchain, digital wallets and smart governance. Some of the projects on the anvil include voice biometrics, as well as an omnichannel banking platform that will incorporate retail and corporate banking services over web, mobile, digital branches, ATMs and kiosks. Services will include customer onboarding, instant lending and remittances, and the UNB Mobile Wallet for students. With all this in mind, the future certainly looks bright for the bank and the wider region.