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Highlights UAE banks’ strategy to build future-proof businesses

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The report explores options for banks to strengthen and grow their corporate and investment banking business.

The report explores options for banks to strengthen and grow their corporate and investment banking business.

Arthur D. Little (ADL) publishes a new perspective, “The Pursuit of Excellence in Corporate Banking,” which examines the challenges and opportunities that illustrate the continuing and even growing importance of the corporate sector to the banking sector in the United Arab Emirates (UAE). importance. This view reviews recent disruptions and expected impacts, and explores options for banks to strengthen and grow their corporate and investment banking (CIB) businesses.

The UAE’s CIB has assets of nearly US$635 billion and revenues of US$15 billion. CIB’s assets are about 5 times that of retail banks. However, according to the report, regional banks’ external communications are largely focused on the consumer space, whether it’s fintech, strategy, digital transformation, products or applications. Furthermore, corporate banking is often seen as a specialized area, and therefore, innovation is often thought to be concentrated in the retail banking sector. The report outlines the increasingly competitive, fast-moving, and complex environment for CIB business, which includes structural trends, various challenges posed by COVID-19, and the war in Ukraine.

ADL Viewpoint calls for the main focus to return to corporate banking for several reasons: the inflationary storm looming, to which CIB will be heavily exposed, and CIB heavily impacted by environmental, social and governance (ESG) efforts. While the retail business is more competitive, CIB still benefits from several growth drivers. Customers are facing increasingly complex problems that require banks to provide new solutions. Furthermore, the SME sector remains underpenetrated. The potential for digital optimization is also largely untapped, with plenty of opportunities for innovation in the blockchain and cryptocurrency space.

Philippe DeBacker, managing partner and global head of financial services at Arthur D. Little, said: The economy and huge private and public sector spending. As highlighted in the Viewpoint, banks should expect further industry consolidation due to lower margins and high regulatory requirements. To accelerate the pace of becoming the bank of the future, banks need to redesign their business models to maximize revenue per customer, preserve capital and ensure resilience through optimized use of financial technology. “

Arthur D. Little Associate Director and Head of Corporate and Government Financial Services, Stephane Ulcakar said: Banks must therefore transform in the same way that automakers and many other industries did in the 20th century. This means moving away from the integration model and outsourcing most of the value steps, except for a few strategic steps such as design, assembly and control. However, in response to these disruptive forces, banks have unprecedented opportunities to expand their operations, reduce costs and become more agile. However, like car manufacturing, this may present additional challenges. “

Sustainable Model: According to the report, banks need to be aware of four common imperatives: 1. Banks must rebalance their portfolios against diversification, return and risk objectives and monitor this at the client level. They must also foresee balance sheet cleanup, impact on Tier 1 capital, development funding and liquidity management capabilities.

2. Banks must maximize revenue per customer by identifying all opportunities for (re)activation and retention, cross/upsell and pricing fulfillment. They must also account for variable rates and facility non-use penalties to reflect rising interest rates.

3. Banks should attract customers beyond credit through distressed M&A, debt capital market (DCM) or ESG transformation financing. They must be prepared to increase nonperforming loans and restructure management. Sector specialization will be required to properly assess needs and risk levels.

4. Banks should strive to simplify their organisation, products and activities. Reducing their share of fixed costs requires the use of digital tools to optimize, automate and/or outsource parts of the value chain, whether suppliers or shared utilities.

A New Paradigm for CIB: Digital transformation trends lead to widespread disintermediation and the need to scale across industries. However, in response to these disruptive forces, banks have unprecedented opportunities to expand their operations, reduce costs and become more agile.

As explored in The View, with strong hindsight from local regulators, start-up banking accelerators multiplying and the fintech ecosystem rapidly evolving, it is clear that the UAE CIB industry is poised to quickly integrate these new trends and successfully adapt them to the specifics of the local market.



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