The Middle East and North Africa (MENA) region has seen exponential growth year-on-year (YoY) according to EY MENA’s latest banking report. 

Titled, EY MENA H1 2023 Banking Report, the report reveals a 30 per cent YoY surge in net profits and a 12.2 per cent increase in net assets. Furthermore, YoY returns on equity also saw a record rise of 6.18 per cent. Not to mention the net interest margin growing by 0.2 per cent too.

This robust performance extended to the region’s banks, which witnessed an 18.8 per cent growth in operating income. Total deposits have increased by 6.08 per cent, and the loan-to-deposit ratio (LDR) is up by 5.43 per cent.

Non-performing loans (NPLs) are expected to remain at the current levels in 2023, with banks adopting a selective approach to lending. Regulatory oversight will be in the spotlight this year with the ongoing implementation of Basel IV regulations and a heightened focus on battling financial crime. This is in addition to electronic know your customer (eKYC) processes, anti-money laundering (AML) and cybersecurity.

The industry can also expect further acceleration of financial market infrastructure initiatives such as EKYC platforms and open banking initiatives across the GCC to continue.

Emerging trends
Charlie Alexander, financial services leader, EY MENA

Charlie Alexander, financial services leader, EY MENA says: “With limited effect to the ongoing banking industry crisis in the US and Europe, the GCC banking sector has undergone a fundamental transformation and is now pursuing a strong upward trajectory, boosted by an increasing demand for lending.

“This development is playing an increasingly important role in the region’s overall economic growth amidst ongoing economic diversification drives. Another positive trend is the pursuit of net-zero roadmaps by most GCC countries, which has led to a rise in the demand for sustainable finance, a key enabler of the transition to clean energy.”

The outlook for the region has been strengthened by robust oil and gas prices and a major boost in non-oil activity, which has also supported credit demand. Other prominent trends dominating the banking sector include:

  • robust fiscal conditions
  • government investments
  • an anticipated improvement in the global economic landscape
  • technological advancements
Digital banking solutions on the rise to meet evolving consumer needs

Digital transformation is the future of the MENA banking sector. Artificial intelligence (AI) is reshaping the financial services industry in the region, bringing faster and more personalised banking services through chatbots.

Among other priority areas are digital banking, mobile payments, open banking, tokenisation, digital currencies, blockchain and sustainable finance.

Banks are also developing new customer experience initiatives aimed at shifting competition away from products to lifestyle banking. This includes introducing chatbots and loyalty programs, in addition to leveraging the latest customer analytics tools to improve their offerings.

MENA banks are increasingly investing in digital banking solutions to address the ever-evolving needs of their customers while balancing customer experience and risk management. By strengthening their risk management technologies and systems, banks are boosting their ability to withstand potential financial risks and comply with regulatory requirements.

Meanwhile, front-to-back modernisation, cloud migration and robotic process automation can help banks establish connections between customer-facing operations and back-end servicing, minimising inefficiencies.

The emerging roles in the banking industry
Houssam Itani, EY MENA banking and capital markets leader,
Houssam Itani, banking and capital markets leader, EY MENA

Houssam Itani, EY MENA banking and capital markets leader, says: “Over the past six months, we have seen an accelerated adoption of growth of digital transformation and implementation of robust risk management practices in the region, which should not be forgotten in the frenzy of growth. Financial institutions are also increasing their transparency and disclosure of environmental and social risks and impacts.

“We are also witnessing an evolution of the role of banking regulators. Central banks are strengthening their core roles and are implementing new technologies to enable it. Furthermore, they are embracing a wider role of enabling banking innovation through implementing regulatory frameworks which are conducive to fintech and open banking and financial market infrastructure.

“Examples include: E-KYC platforms, real time payment systems, central API infrastructure and many others. The evolving regulatory environment is expected to open the door for measured growth which balances innovation and financial resilience.”

Technological advancements are reshaping the UAE’s banking sector

The banking sector in the United Arab Emirates (UAE) is experiencing significant growth. The 2022 financial results indicate an increase of 31 per cent in net profits and total assets, driven by strong growth in deposits, loans and advances, and a boost in net interest income. The substantial investment of approximately AED131billion in technology initiatives by the UAE banking industry has played a key role in attracting digitally savvy customers from the ranks of individuals and businesses.

The study predicts that GCC banks will remain resilient in 2023. It estimates improved economic conditions. Especially considering the projected sustainability of government support for the economy, driven by the oil price. Meanwhile, inflation is likely to subside due to higher interest rates.

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