As the UAE banking sector comes to terms with new regulations and the implications of VAT, KPMG’s third edition of the annual UAE banking perspectives report reveals how technological innovation and strong corporate governance will enable banks to transform into robust financial institutions.
According to the report, artificial intelligence (AI), blockchain and fintech have emerged as the major technological disruptors that will change the way banks operate and help them achieve cost optimisation.
For instance, robotic process automation (RPA) can be combined with AI to differentiate customer engagement. Some banks are even exploring automated decision-making based on sentiment analysis by extracting data from millions of emails and other data sources.
The report also analyses the validity of exploring and implementing blockchain applications to achieve three objectives: improve operational efficiency, increase revenue, and reduce risk.
“Banks in the UAE are operating in very dynamic times. The introduction of new laws and tougher regulations is putting tremendous pressure on banks to re-think their business models. Furthermore, the introduction of VAT has impacted profit margins,” said Emilio Pera, Partner and Head of Financial Services, KPMG Lower Gulf.
He added that all these factors are encouraging banks to embrace technological innovation like never before and use it to engage with customers in new and creative ways; the report examines each of these factors against an evolving backdrop, including cybersecurity and corporate governance, and presents the road ahead for the next nine months.
Furthermore, as new IFRS standards impact banks across the world, it has brought about far-reaching changes in many areas such as financial reporting, risk management, capital management, regulatory reporting, data sourcing and collection, governance framework and IT systems.
As banks grapple with the new VAT regime and the high compliance costs associated with mandatory VAT registration and the inability for banks to claim all input VAT due to a large proportion of their services being exempt, the report states that banks could be forced to increase their fees to compensate for the additional costs.
Cybersecurity has emerged among the top priorities in the board room, as any breach could undermine the trust that customers have in their bank and affect the future profitability and sustainability of the organization. To address this, KPMG’s UAE banking perspectives 2018 advises that UAE banks formalise their response strategy and should consider investing in cybersecurity from a consumer-centric point of view.
The report also reinforces that a strong and positive corporate culture will go a long way to helping banks manage regulatory and innovation challenges in 2018.
“The last year has seen the emergence of an increasingly disruptive banking sector which has heightened the degree of both opportunity and threat. Despite this, the general picture is a healthy one, with the sector continuing to surpass that of the wider UAE economy in 2017: the top ten banks’ total asset growth exceeded five per cent. We are also confident that banks are in better shape compared with a year ago, in terms of having a more long-term, ethical and consequently more trustworthy culture. Banks will now have to embrace change if they are to operate to their optimum over the next nine months,” Pera concluded.