IBRAHIM: Islamic banks’ market share is growing rapidly; the growth of Islamic bank is higher when compared to conventional banks. We are expecting that the market share of Islamic banks during the coming few years will grow. We are expecting by 2022 we will reach 27-30% of the market share, so it is a very growing, very promising sector.
The challenge of an Islamic bank is like any other bank. Islamic banks have become part of the financial sector, so the challenges that Islamic banks are facing are the same challenges that conventional banks are facing. Islamic banks’ offering is now a very well-diversified product portfolio that can cater to all the needs of the corporate and the retail customer.
AMIRI: The main opportunity comes from people who like to invest or get finance on a sharia-based structure. But we are now seeing a lot of non-sharia-based establishments, or even countries; they are happy to go with Islamic banking finance because of the vast liquidity which is available now in the market.
Innovation for growth
IBRAHIM: Technology is a must, and it’s the way forward for banks. You have to invest in technology in order to survive, in order to compete, in order to protect your customer base, in order to gain new customers. You have to invest in technology, you have to meet the needs and the requirements and the demands of your retail customers, as well as corporate customers and international ones.
AMIRI: Banks are always changing with technology. Technology is changing fast, and that is why banks are changing fast. Sometimes banks cannot do a long-term strategy in technology because today we have something; tomorrow we have something else.
Some of the banks now, they’re trying to be proactive more than reactive. They’re trying to bring the new technology before it comes in the market, so they try to invent and create technology that helps banks serve their customers.
IBRAHIM: You cannot avoid any deviation from the customers’ needs and requirement. So this will be focus for banks in the coming short and medium term, which will make for a lot of changes in the banking sector.
Going towards digital banking, it’s a must, not a choice, by banks. It will improve the process of transactions, it will improve the experience of customers within the bank, it will improve the cost-income ratio and the operating cost of banks, which will impact positively at the end in your bottom line and your profits in the bank.
Digital banking is mainly driven by customers. In order to grow as a strong financial institution, you have to be close to the customer’s needs and what the customer requires in the future. The future of banking is digital, and you cannot ignore that. In order to gain market share, you have to invest in this technology.
Risk and diversification
AMIRI: One of the strategies that banks are doing right now is diversification. Diversification came here in the market, especially when some of the sectors in banking, like retail sectors, went a little bit down in 2008, and banks looked very seriously to find alternative sectors.
IBRAHIM: UAE banks are very dynamic, and are known to be very dynamic with their reaction to the market. The offering for SMEs is very important; banks are always creating new products for the SMEs and the start-up business.
SMEs represent 90% of the total companies in the UAE, so you cannot avoid supporting and financing the SME sector.
Banks have to understand the risk of the SME and the start-up, and you need to address the risk. They also need to take a look at the opportunities in the same sector. There are a lot of benefits of supporting and financing SMEs and start-ups. There are a lot of challenges that banks have to face as well – but, again, if you look at the benefits, you are looking improving profitability and returns. Secondly, is to diversify the risk between different sectors and different companies – that is also one of the aims and targets of banks.
The SME and the start-up is the backbone of any economy, and it’s a good way of diversifying the risk in the financial sector. The growth of SMEs normally requires cooperation with both the government as well as the financial sector. Without the funding and the support of the financial sector, a start-up will be very difficult.
AMIRI: We are lucky in the UAE that the country is having many upcoming events, such as Expo 2020, and these are bringing many infrastructure-financing opportunities to us. We are very happy to finance these infrastructure projects because of our trust in our government.
IBRAHIM: Banks will be able to support the growth of the infrastructure sector, which in return will impact positively in other sectors of corporate as well as retail segment and SMEs, so in the short and medium term it looks very positive.
AMIRI: We can see that business sentiment is changing, especially from the beginning of the year. We are seeing new companies opening, new buildings and new infrastructure, also government infrastructure happening. We are seeing a lot of mega-projects, either in Sharjah or in the UAE, and all these things translate [into evidence] that we are still on a very good path, and that infrastructure and businesses are flourishing, and the economy is sustaining.
IBRAHIM: We have in the UAE a strong capital base; if you look at the capital base of UAE banks, the risk-weighted assets of the banking sector are improving, and if you look at the liquidity ratio of banks, banks are very liquid. The loan-to-deposit ratio is improving, so this will give room to grow, but you have to strike a balance between the regulations and the growth. The challenge for banks would be how to comply with all these regulations and the international standards, and at the same time grow your business and hunt opportunities to diversify into different sectors.