Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Middle EastMarch 1 2016

UAE Banks Federation chief looks to mobile payments, SMEs and Islamic finance

The United Arab Emirates Banks Federation is embarking on a range of measures to tackle the country’s slowing economy, including improving mobile banking payment services, bolstering the assistance provided to SMEs, and developing a more consistent approach to applying sharia law to finance. Its chairman, Abdul Aziz Al Ghurair, speaks to James King.
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Abdul_Aziz_Al_Ghurair

While the United Arab Emirates’ economy may be enduring a period of slower growth, the country’s banking sector is well positioned to weather the change. With a Tier 1 capital adequacy ratio of 16.6% and a liquid assets ratio of 17.4%, according to data from the country’s central bank, the sector as a whole is in good shape.

As such, most lenders are set to maintain a steady, if slower growth trajectory for the coming year. Yet, challenges do remain and the fall in the price of oil has meant a significant drawdown of government and public sector deposits from many lenders. This has fed into a wider liquidity challenge for the sector, leading to an increase in local interest rates in recent months.

A bright future

Although such difficulties, and others, are expected on the road ahead, most market participants remain confident about the banking sector’s prospects. In particular, the chairman of the UAE Banks Federation (UBF), Abdul Aziz Al Ghurair, points to the diversified nature of the country’s economy, as well as the resilience of its lenders, when looking to the future.

“Without doubt, declining oil prices pose a liquidity challenge for the banking sector in the UAE, [a problem] driven largely by the reduction of government deposits. As a result, funding costs have been rising from their 2014 record lows, while loan to deposits are reaching a one-to-one level. An expected moderation of lending growth, as well as a prudent approach [to the sector’s development], will help offset the liquidity squeeze, I believe,” he says.

“Overall, I am confident that the UAE banking sector will be able to withstand the current headwinds and remain solid because of its resilience, strong capitalisation, ample provisioning and the opportunities offered by the robust and well-diversified UAE economy.” 

Mobile services

Since its formation in 1982, the UBF has played an important role in the development of the UAE's financial sector. Recent years have been no exception, with the federation offering a guiding hand in the rollout of the country's mobile wallet programme. The programme will enable payments for goods and services from smartphones and other mobile devices, while also allowing consumers to store and transfer money, reducing the need to carry cash. The final preparations are now being made by the country’s lenders to implement the wallet.

“This ground-breaking project recognises the fact that banks are to an extent facing competition from new, innovative non-banking digital players and the digital revolution has opened up a new world of opportunities to banks that are willing to go outside their traditional activities and experiment. Although there are many mobile payments solutions in use around the world, this is the first to be available for all banks licensed to operate in one country. The new technology will take the UAE closer to becoming a truly digital economy where phones and other mobile devices can be used to access traditional banking services,” says Mr Al Ghurair.

Standardising the rules

Alongside the mobile wallet programme, the UBF is also playing a part in the development of a higher sharia authority for the UAE. As the importance of the Islamic finance market develops both in the UAE and around the world, the need for enhanced regulation has grown. Here, the UAE is now moving towards the implementation of a centralised sharia board to improve the consistency and predictability of the country’s sharia-compliant financial sector. This marks a notable departure from the existing system, in which individual financial institutions are responsible for regulating their respective sharia compliance. 

“The UBF is working closely with the UAE central bank to establish the Higher Sharia Authority [HSA], whose main objectives would be to standardise a fatwa relating to Islamic financial services and its relevant criteria, as well as to formulate guidelines, policies and regulations to support the growth of the Islamic banking and finance industry in the UAE. The guidelines and policies developed by the HSA should be uniformly applicable to all types of Islamic financial institutions,” says Mr Al Ghurair. 

As to the future, the UBF is also considering the ways in which the UAE’s small and medium-sized enterprises (SMEs), which account for more than 90% of all private companies in the country, can receive the necessary funding support from the banking sector. To this end, the UBF’s special committee on small businesses has been working closely with the central bank to determine a commonly accepted definition of an SME, while work is also being done to promote the development of an asset register for SMEs to help the banks gain a better understanding of what they lend against. 

“We recognise that the UAE government places a very high priority on supporting and assisting new companies to ensure that they get the resources they need to survive and prosper,” says Mr Al Ghurair.

Was this article helpful?

Thank you for your feedback!