Interview: Ahmad Abu Eideh
How has the Covid-19 pandemic affected banks’ asset quality and profitability, and to what extent are stimulus measures facilitating recovery?
AHMAD ABU EIDEH: The pandemic affected all sectors of the economy, and the full extent of its impact will only unfold as more data becomes available. The economy has been in a reactive stage rather than a proactive one, as evidenced by layoffs in several industries and the contraction of business activity – particularly in hospitality and retail. However, not all areas of the economy have been negatively impacted.
The banking sector mirrors the wider economy and profitability is derived from the business activity of our customers. In the UAE, the full impact of the Covid-19 outbreak was cushioned by government stimulus measures, which were announced and executed earlier here than in other Gulf countries. Whether the Central Bank of the UAE’s Targeted Economic Support Scheme (TESS) or Sharjah’s stimulus package, these measures provided substantial support to retail and corporate customers, particularly by allowing loan instalment deferments and offering support initiatives like reducing business fees or waiving some taxes for affected sectors. As a result of this support, the UAE banking sector has remained quite resilient and committed to the local economy, despite multiple economic shocks.
In what ways are banks aligning their credit requirements with the needs of businesses and customers affected by the pandemic?
ABU EIDEH: Not every customer can provide proof of being impacted by the health crisis, and therefore cannot be included as part of TESS. However, banks are evaluating clients on an individual basis to award deferment mechanisms, helping to settle loans or providing other aid to non-TESS clients, whether retail or corporate. Banks have maintained lending to bankable business deals and continued to support the local business community. However, due to uncertainty in the wider economy, banks have to be extra diligent in assessing financing projects.
However, some businesses or industries have only been minimally impacted by the pandemic and therefore do not require stimulus support. Whereas small and medium-sized enterprises have been more impacted, some segments like financial technology (fintech) or ICT have thrived. While banks remain committed to channelling funds into all segments of the local economy, vigilance is always required as we are custodians of the money of depositors and lending must be subject to stringent risk analysis.
In which ways was digitalisation used to strengthen the banking ecosystem amid lockdown periods and social-distancing restrictions?
ABU EIDEH: Organisations that had already embarked on a digital journey faced much less disruption during the pandemic than those that had not yet embraced digital transformation. Inevitably, there will be a greater drive towards digitalisation across all industries, with fintech receiving more attention. Organisations behind in the digitalisation drive now understand how essential it is to make these investments, and the banking sector sees where it needs to head in this area. Indeed, businesses that do not embrace digitalisation may become obsolete. However, digitalisation comes with risks as well, leading banks to address weaknesses in their systems to reduce their vulnerability to cyberattacks.
A major trend impacting the financial sector is digital banking, which has grown considerably in recent years and is fuelled by a younger population that is increasingly comfortable with fully utilising digital platforms. Digital banking allows for every step of the banking process to be done online, from opening an account to accessing financial products. These tools are being adopted at a high rate by the local market. Similarly, these technologies enable a low-cost base and greater efficiency, which help banks to be more competitive.
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