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March 13, 2017 | 14:50 | Dubai
In its annual collection of perspectives on the UAE’s banking sector, KPMG, a leading global audit, tax and advisory firm that has been established in the UAE for over 40 years, says banks need to ask themselves some fundamental questions about their desired culture and values and how these are reflected across all levels of their organizations.
Emilio Pera, Head of Financial Services for KPMG, says: “When GDP growth is slowing and banks and other financial institutions are being squeezed by more challenging market conditions, including the need to set aside increasing amounts of precious capital to cover impairments and non-performing loans, the sector is under tremendous pressure to innovate by optimizing business processes and investing in new digital technologies – while at the same time complying with new regulatory reforms.”
There are a number of ways that banks are responding to these challenges and establishing cyber security as a competitive advantage, rather than simply a compliance necessity, is one way regional banks are responding.
Another is to improve the way banks use the wealth of data they hold on their customers to improve the customer experience and enhance risk management by more accurately predicting issues, such as assessing who to extend loans to.
Luke Ellyard, a KPMG partner who heads the firm’s financial services audit practice in the UAE, says: “The increasingly complex regulatory landscape means banks have to change – sometimes willingly and sometimes reluctantly – the way they operate. Banks – not just here in the UAE but regionally and globally – should be asking themselves how they can better support the growth and development of the national economy, for example by encouraging SMEs that are the lifeblood of the UAE economy, while also ensuring that they clearly understand the risks of a changing banking universe.”
Both Pera and Ellyard, while praising the conduct of stakeholders throughout the banking sector, make the point that this is not a time to be complacent.
Global changes – whether in terms of liquidity under Basel III or changes to international financial reporting standards, such as IFRS 9 – are going to significantly impact the sector. When those changes happen at the same time as significant local fiscal change, such as the introduction of VAT, it is possible we will see considerable change.
Umair Hameed, a Partner in KPMG Management Consulting warns: “Pre and post-implementation support is likely to require more resources, and cause more radical change than a lot of banks currently seem to predict. While the UAE’s banks are well-run, well-resourced and seem set for future growth, it is critical that we all get the balance – between risk and opportunity or regulation and innovation – right.”