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- CIB is about to face a new perfect storm amid rising inflation, less available capital and increased competition
- 15 of the top 20 banks in the MENA region derive more than 50% of their revenue from the CIB: ensuring consistent performance in this LoB is critical for them
Dubai, UAE: Arthur D. Little (ADL) publishes a new perspective, “The Pursuit of Excellence in Corporate Banking,” which examines the challenges and opportunities that illustrate the continued and even Growing importance. This perspective reviews recent disruptions and anticipated impacts, and explores options for banks to strengthen and grow their corporate and investment banking (CIB) businesses.
The UAE’s CIB represents almost $635 billion. Assets and $15 billion. income. 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. “
Develop a sustainable business model
According to the report, banks need to be aware of four common imperatives:
- Banks must rebalance their portfolios against diversification, return and risk objectives, and monitor this at the client level.They must also forecast balance sheet cleanup, impact on Tier 1 capital, development funding and liquidity management capabilities
- Banks must maximize revenue per customer by uncovering 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.
- Banks should attract clients 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.
- Banks should strive to simplify their organisations, their products and the activities they carry out. 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.
At the same time, a successful CIB strategy must leverage the bank’s core assets and capabilities to create a differentiated and viable positioning.
Looking forward to a new paradigm for CIBs in the GCC
Digital transformation trends lead to widespread disintermediation and the need for 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 discussed by Viewpoint, with the strong hindsight of local regulators, the multiplication of start-up banking accelerators and the rapid development of the fintech ecosystem, it is clear that the UAE CIB sector is poised to rapidly integrate these new trends and successes adapt them to the specifics of the local market.
“Pursuit of Excellence in Corporate Banking“ Views can be viewed and downloaded [here].
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About Arthur D. Little:
Arthur D. Little has been at the forefront of innovation since 1886. We are recognized thought leaders working to connect strategy, innovation and transformation in technology-intensive and converged industries. We guide clients to discover new opportunities for growth through the changing business ecosystem. We enable our clients to build innovation capabilities and transform their organizations. Our consultants have extensive real-world industry experience and an excellent understanding of key trends and dynamics. Adl is present in the most important business centers of the world. We are proud to serve most of the Fortune 1000 companies, in addition to other leading corporations and public sector organizations.
For more information, visit: www.adlittle.com
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