The GCC is one of the most overbanked regions in the world. What are your views on how sustainable this is for the market?
We are already beginning to see the impact of an excessive number of banks in the region with the current wave of consolidation taking place most notably in the UAE and KSA. In our view, there are a number of important contributing factors:
• Firstly, customers are becoming ever more demanding from their banking providers, particularly when it comes to the use of new technologies to reduce the hassles of banking.
• Secondly, regulators are beginning to make it easier for customers to switch bank accounts. In Saudi Arabia, a number of banks are now allowing customers to open accounts remotely and are witnessing a huge demand. In the UAE, we have already seen the success of digital account opening at banks such as Emirates NBD’s Liv.
• Finally, and most importantly, shareholders realise that the future winners in banking will be those with scale and the ability to invest in new technology.
Over the last couple of years, we have seen quite a number of merger announcements, with two successfully materialising in that period of time. How do you foresee the M&As in the banking sector evolving over the next five years?
Given the emerging pressures of a tightening economy, and the needs of large digital investments to compete, we expect to see increasing levels of consolidation. Banks with common shareholder ownership are those to watch; for example, we saw this in Saudi Arabia with both SABB-Alawwal and NCB Riyadh Bank mergers.
Referencing markets such as the UK, the US and Canada, there are typically four to five big banks that dominate the market, and a series of smaller banks that struggle to compete. The Kingdom of Saudi Arabia’s banking market is beginning to resemble that structure. As these trends continue—the smaller traditional banks will face challenges as to how they will compete.
This is particularly pertinent now, with regulators increasingly open to offer licences to new start-up banks, resulting in traditional banks losing their attractiveness, even to those looking to enter the GCC markets.
Financial institutions have discussed digitisation at length, with many rolling out extensive strategies and services. Taking these into consideration, are there still gaps to fill? If so, where and why?
Banks in the region are still in a nascent phase and have a long way to go in their digitisation journeys. For most, the onboarding process for retail customers still does not reflect the true impact of digitisation to create seamlessness and ease, such as the “scan your ID and take a selfie” account opening process of Monzo.
In corporate banking, the digitisation journey has hardly started for most banks. When it comes to data analytics, most banks are still on the starting blocks. There are certainly plenty of gaps to be filled.
What do you think are the biggest challenges faced by GCC banks at the moment? And what would you suggest to address these issues?
There are numerous challenges for banks in the region, with the most obvious being the difficult economic circumstances with an ever-increasing regulatory burden and the need to digitise.
As a start, banks in the region should focus their efforts in addressing the softer challenges first, particularly: how do I attract the right talent? And how do I create the right innovative and attractive working culture?
The winning banks in years to come will be those who are the fastest at capitalising on the changes sweeping the industry, and this will mean acquiring the best talent; leading data scientist, programmers, inventors, and creating a culture where these individuals are retained and thrive. These will be the toughest challenges for banks in the GCC.
From your conversations with industry stakeholders, what would you suggest bank CEOs here do differently?
Based on our experience and engagement in the regional industry, there are three key imperatives for banks in the region:
• Focus on customers;
• Unlock your talents; and
• Keep the process as simple as possible.