Abdul Aziz Al Ghurair, CEO, Mashreq Bank

On lending trends and digital safeguards

How will activity in the emirate’s real estate sector impact bank lending?

AL GHURAIR: The growth of Dubai’s real estate sector is not only attributable to the work being done in preparation for Expo 2020, but also to the expansion of the tourism sector – in particular, the meetings, conferences and exhibitions segment – and the increase in the emirate’s population size.

The biggest challenge we face in this sense is not sustaining growth, but maintaining the balance between supply and demand. This can be difficult to achieve, given the time it takes between planning new units and having them delivered to end-users or investors, during which the value of real estate is subject to change. However, these fluctuations are being taken into account by lending institutions, and infrastructure investment related to Expo 2020 and other capacity-expansion projects is here to stay.

Given that small and medium-sized enterprises (SMEs) in the UAE continue to face difficulties accessing credit, what more needs to be done to boost lending?

AL GHURAIR: The banking sector in the UAE has pushed to increase lending to SMEs under the belief that it is part of their role to support small businesses. However, around 90% of SMEs in the UAE are foreign, which presents an added risk – during the economic downturn in 2015 and 2016 we saw plenty of foreign owners of SMEs close their businesses and leave the country. Back then, banks incurred heavy losses across their SME portfolios and, as a result, are now practising extra care. Today, banks make secure SME lending appraisals before they provide any loans. This involves ensuring that companies have proper corporate governance, necessary audit statements, and a division between ownership and business management.

How will the changing digital landscape affect the sector with regard to online and mobile banking?

AL GHURAIR: The number of transactions that are being executed without the need for human interaction is growing. Therefore, an enormous amount of attention to cybersecurity is necessary. Technology is moving very fast and banks need to adapt to the new scenario.

Digital transformation, robotics and artificial intelligence have given us important tools to deliver better banking services to our customers. Around 97% of our retail transactions are taking place outside the branch. Many services have been automated, which has led to an increase in the offer and value banks give to customers. An illustrative example of this is the ATM machine, which was previously only used to dispense cash, but now also accepts cash and recycles it, allowing customers to access these services beyond the limits of office hours.

The digital scenario has already begun changing the competitive landscape, as more banks can enter the market without having to open multiple branches. However, this is where brands become increasingly important. People feel more comfortable dealing with a brand they already know. Because of this, brand equity is going to be vital in the digital world, and digital advertising will help build this over time.

What tools can the Central Bank of the UAE and the broader sector utilise to minimise the negative effects of rising US interest rates?

AL GHURAIR: An increase in interest rates will raise banking profitability. The downside to this is that credit will be more expensive for consumers, but the rise is not expected to be high enough to affect demand in a significant way.

We think that in 2018 and 2019, as the Al Etihad Credit Bureau matures and banks become familiar with its operations, the positive effects on confidence will spread further, and we will start seeing substantial growth in consumer credit.