UAE Banking Sector Poised for Growth in 2022

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  • The top 10 UAE banks reported a 5 percent year-on-year increase in total assets worth AED 2,989 billion in 2021, and an increase of 42 percent in net profits;
  • Improved infrastructure and digital trends like cryptocurrency will drive the financial services sector;

The UAE’s financial services sector is adopting new resilience mechanisms to counter the effects of the global pandemic. It includes digitalization, enhanced regulatory frameworks, corporate governance, and risk management strategies.

This is according to the KPMG UAE Banking Perspectives 2022 report, which analyses key trends and opportunities in the financial services industry.

Abbas Basrai, Partner and Head of Financial Services, KPMG Lower Gulf, said: “The UAE banking sector has performed remarkably, despite prevailing financial and economic conditions. We believe banks have emerged stronger than ever after the economic slump brought about by the pandemic. To best serve the interests of all their stakeholders, financial institutions will do well to constantly adapt their operations and compliance functions to keep pace with the maturing regulatory landscape, become early adopters of nascent technologies, and embed environmental, social, and governance (ESG) into all they do.”

The seventh edition of the report found that the UAE banking sector enjoyed a promising year against a backdrop of sweeping tax reforms, including UAE Corporate Tax announced this January and Global Minimum Tax announced in 2021.

The top 10 UAE banks reported a 5 percent year-on-year increase in total assets worth AED 2,989 billion in 2021, and an increase of 42 percent in net profits. This is mainly due to lower impairment charges, as banks had reported higher losses and customer defaults in the previous year because of the pandemic.

The capital position remains strong and the overall liquidity position, cost-to-income ratio, and return on equity of the market remained steady year on year.

The UAE Banking Perspectives 2022 report also analyzed key drivers of consumer satisfaction amongst major UAE banks and found that one of the major pain points for consumers was a lack of efficient support for their reported issues relating to business conduct, which included suspected fraud and incorrect information being received. The ‘cryofixation’ of banks was also identified as a key trend in 2022, due to increased demand, supply, and banks did not want to miss out on its adoption.

The banking sector is subject to mounting regulatory and stakeholder pressure to embed ESG considerations into operations. Financial institutions play a pivotal role in providing funding to combat climate change, challenge and incentivize ESG practices within their customer base, and support organizations as they work toward addressing the UN Sustainable Development Goals (SDGs).

Other key trends shaping financial institutions the report identified were the implementation of cloud strategies, outsourcing and offshoring of compliance, IT, and other processes to meet the demand for quick and secure transactions.

The typical customer is evolving, and banks need to move with the times. Clients with low amounts of investment capital now collectively form a key potential market. These individuals are looking for highly personalized advisory solutions from technologically sound advisors, and advanced platforms and features, to help them manage their family wealth and succession plans. Digitalization has reduced client-retention costs and improved access to their capital. As a result, many banks are working on strengthening their wealth management businesses.

Customer satisfaction increases exponentially as banks can ask the correct questions, avoid repetition and focus on the right transactions at the right time. A data-driven approach may enable banks to augment traditional risk factors, create a more dynamic risk-assessment process by incorporating additional data points, and generate a scoring framework with a detailed web of risk factors. This will ensure they can best serve the interests of their stakeholders and align with the UAE’s long-term vision for digitalization.

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