If we look at the economy as a whole, what I’m seeing is a degree of tempered optimism across the UAE for 2016. The government and businesses are exercising caution in their spending and investments, which is prudent given the low price of oil and the impact it is having on economies across the Middle East.
With the recent interest rate hike in the US, the UAE Central Bank has also announced an increase in rates and this will have a corresponding effect on the economy and the value of the UAE dirham against foreign currencies.
However, the UAE’s national drive of developing a diversified economy is providing a buffer against the impact that low oil prices would have had on its economy otherwise. With analysts predicting that the price of oil is unlikely to rise in 2016, and indeed according to some experts it may drop even further, the UAE’s diversification policies have enabled its economy to be somewhat more insulated than it was in the past.
What does this tempered optimism mean for the banking sector? Well, for one thing, the UAE banking sector continues to evolve and mature. UAE banks benefit from capital that positions the industry for stability in a period of low oil prices. In addition, with support from the UAE Central Bank, we have seen that the continued and combined efforts of the UAE Banking Federation and UAE banks to raise the standards of banking in the country are bearing results.
As the UAE features more prominently on the world stage as a partner for business, the need for UAE banks to align with international standards is increasingly important. For example, the ongoing introduction of regulations around capital and liquidity are among some of the global regulatory standards being embraced by the sector. They have the positive effect of strengthening the banking industry in the UAE while aligning us with our global banking peers. The introduction of new insolvency laws in the UAE is another example of the further development of the local regulatory regime.
To continue this story of stability and growth, banks in the UAE must keep pace with both the requirements of the sector and the demands of their customers.
We have witnessed the introduction of more exciting innovations in banking than I believe the UAE has ever seen before. Now is a time of digital transformation, with customer demand driving new innovations that allow customers to take control of their finances through online banking, mobile phone applications and self-service technology in branches.
But looking forward to 2016, I believe there is much more banks can do to put innovation at the heart of their businesses. There remains a lot more that we can be doing as an industry to embrace digital innovation using different channels to engage with our customers. Similarly there is more we can do to support business, entrepreneurship and the developing needs of SMEs in the UAE.
Developing the banking sector for continued growth and strength is just one part of a successful banking industry, however lenders also need to take a leading role in supporting the improvement of financial literacy across the UAE. This has two significant benefits – one, it empowers bank customers to make the most of their finances and achieve their financial aspirations, and two, it supports the continued sustainable growth of the industry. In times of economic uncertainty this becomes even more important, as banks and customers alike look to manage their financial risks.
Next year’s economic performance against the backdrop of low oil prices will still see growth in economic activity. Most importantly now, all sectors need to be preparing for an economic uplift in 2017/18 as the price of oil starts to stabilise and rise. Meanwhile, UAE banks, with their strong capital and liquidity buffers, will continue to play their part in the continued growth of the UAE in 2016 and beyond.
Now that Dubai has been officially confirmed as host city of World Expo 2020 and we expect a new phase of increased activity.
AbdulAziz Al Ghurair, Chairman of the UAE Banks Federation and CEO of Mashreq.
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