Retail banking in the United Arab Emirates: Evolving and already competitive

The banking industry in the United Arab Emirates (UAE) is moving towards recovery from the economic slowdown of previous years. In 2014, the UAE central bank revised early settlement charges downward to 1% of total outstanding, and banks started to implement shorter processing times for loan approval. Under the stimulus measures and with strong foreign direct investment (FDI) as well as local regulations firmly observed, we project the growth of retail loans in the UAE to have risen 15% from 2013 to 2014.

National Bank of Abu Dhabi
Retail operations of the National Bank of Abu Dhabi (NBAD) have been growing steadily over the last few years, with retail income increasing from 1.9 billion UAE dirham (AED) ($0.44 billion) in 2012, to AED3.09 billion ($1.19 billion) in 2013; and further to AED3.34 billion ($1.1 billion) in 2014. In 2013, the bank’s global retail and commercial operations earned revenues of AED3.34 billion ($1.1 billion). It posted AED1.22 billion ($0.33 billion) in net profit, which accounted for more than one-fourth of the group’s operating profit for 2013. Retail and commercial operations again exhibited strong performance in 2014, with revenues up 8% and net profits by 11%, reflecting continued strength in retail loans and deposits in the region (Figure 1).

NBAD’s strong financial performance is a result of changes in the strategy and structure of its global retail and commercial business

Changes in the strategy and structure of NBAD’s global retail and commercial business were largely responsible for the bank’s strong retail performance. The bank moved towards providing a more seamless customer experience across all channels such as branches, call centres, internet services, and mobile technology. Retail and commercial customers were reclassified to include small and medium enterprises, as well as some market entities in Oman and the UAE.

New banking innovations will focus on building new banking business opportunities in the UAE, and nurturing them until they establish themselves as fully operational. The Abu Dhabi National Islamic Finance, which offers sharia-compliant products and services, was also absorbed by the bank. All of these have helped enhance customer experience, produce more cross-sell opportunities, and allow deeper market penetration.

In terms of lending, personal retail loans have been steadily increasing since 2012. Personal retail loans increased from AED26.8 billion ($7.3 billion) in 2012 to AED28.56 billion ($7.78 billion) in 2013, and further to AED32.22 billion ($8.78 billion) in 2014 (Figure 2).

The increase in retail loans can be attributed to the “Dream Big, Live Big” Campaign, which provided greater convenience for customers. Launched at end-2011, the campaign provides loans up to AED5 million ($1.36 million) for UAE nationals and up to AED2 million ($0.55 million) for expatriates, at interest rates as low as 4.49%. The campaign also offers eligible customers the opportunity to consolidate various loans from different providers into one simple loan from NBAD.

The increase in retail loans was mirrored in the parallel increases in automotive loans and personal loans. Auto loans increased from AED1.24 billion ($0.38 billion) in 2013 to AED1.56 billion ($0.43 billion) in 2014, growing by 26.2%. A similar trend was observed in mortgage loans, which grew by 28.2% from AED9.5 billion ($2.59 billion) in 2013 to AED12.2 billion ($3.32 billion) in 2014 (Figure 3). This growth in lending combined with a decline in deposits resulted to a higher loan-to-deposit ratio for the bank.

One of the primary weaknesses of the bank is its narrow and regional focus. For this reason, the bank has been expanding its global coverage to London, Paris, and nine markets in sub-Saharan Africa, thus improving client coverage capabilities.

It is also doubling its sales force, leading to substantial increases in business volumes, including partnerships with Real Madrid to offer co-branded Read Madrid cards outside of Spain.

To further improve the retail-led, customer-centric approach, the bank has launched “Falkom Tayeb”, an Emiratisation effort, which will train 118 UAE nationals and place them in the retail arm of the bank. NBAD is also currently focused on enhancing Islamic banking offerings and improving cross-sell opportunities and commercial lending programmes and trade-related businesses.

To meet the services demanded by the highly customercentric approach and measures, the group is currently working on a project to implement retail scorecards for program lending products, and upgrade overall retail lending processes. These scorecards would be used for retail credit underwriting based on preapproved criteria, so as to significantly reduce loss rates and turnaround times.

All these measures taken by the bank indicate an already strong retail segment that is thriving on NBAD’s strong personal lending activities. NBAD is poised to become a major contender for retail market share in the Middle East.

Abu Dhabi Commercial Bank
The Abu Dhabi Commercial Bank’s retail segment has seen increasing growth in recent years, with retail income increasing from AED3.0 billion ($0.82 billion) in 2012; to AED3.2 billion ($0.87 billion) in 2013; to AED3.5 billion ($0.95 billion) in 2014. This represents a growth of 0.78% in 2013 and 5.4% in 2014. In 2014, retail profits contributed 23% to total profits (Figure 4).

In 2014 alone, ADCB’s retail segment saw an increase in 5% in operating income and a 72% increase in net profits. As of 2014, the bank has grown its customer base by 14%, which has led to a 22% increase in retail assets. Much of the growth in retail assets can be attributed to the growth in its sharia-compliant Islamic banking business, which contributed 31% and 42% of retail assets and retail liabilities, respectively, in 2014.

There was also a significant increase in retail loans, from AED14.96 billion ($4.08 billion) in 2013 to AED17.75 billion ($4.84 billion) in 2014. Credit card loans also grew from AED2.2 billion ($0.6 billion) to AED2.7 billion ($0.74 billion), an increase of 24% (Figure 5).

The improvement in retail banking indicators is due in large part to the bank’s new customercentric approach, seen in the launch of plans such as “SimplyLife”, which accounted for a significant portion of the increase in retail and credit card loans. This plan offers consumers the new Titanium MasterCard credit card that offers 1.5% cash back on every purchase. As a result of this, credit mortgage and auto loans have increased. This basic banking value proposition has allowed the bank to tap into the mass-market segments of the UAE, and expand its retail presence.

Moreover, since end-2011, ADCB has provided free banking services to retail customers for their personal and savings accounts. This service encouraged retail customers to transfer their banking relationships to ADCB, enabling the bank to further strengthen its retail and commercial segment.

All of these policies, coupled with the bank’s “Money Can’t Buy Ambition” campaign from 2013 attracted a previously untapped market of entrepreneurs who can benefit from free banking and credit card services. As a result, there was a 16.5% increase in investment subscriptions in 2014.

There was also a remarkable transformation in online banking, mobile applications, and biometric voice recognition services. With falling interest rates and strong competition in the operating environment, ADCB shifted to back-end processing and volume growth. These technologies were used by ADCB to reduce the complexity of its services and facilitate a more customercentric banking approach.

The UAE has one of the highest smartphone penetration levels in the world, with 78% of the population using smartphones. Against this backdrop, ADCB launched a mobile banking application for Apple phones, which it will soon extend to Android-based devices and other systems. It also integrated mobile banking with its CRM suite and other channels and launched the Mobi payment system in 2011, a paperless, cardless, and phoneless payment platform. The bank is working on continual improvements and additional launches of this mobile banking platform.

ADCB pioneered the use of voice biometrics in the region by using Voicepass as a means of authenticating customers and allowing them to perform banking transactions on mobile devices more securely and easily. This technology was offered in three languages, Arabic, English, and Hindi, to facilitate wider client coverage.

Another significant effort made to pursue a more customer-centric approach to banking services has been its comprehensive rebranding initiative, which led to the redesign of different aspects of the bank’s brand, including its branch experience, which puts the customers’ needs at centre stage.

On the whole, the trends are indicative of growth and strength particularly in Islamic banking and credit cards. As ADCB faces increasing competition in the rapidly evolving banking industry in the Middle East, it is building upon these strengths, as can be seen in its expansion efforts and wider client coverage through the use of customer-centric mobile and technology platforms, which drive cross-selling and penetration of untapped markets.

Technology is the key element
The UAE has ambitious plans to build the country as a leader in technology innovations. Most of the region now has 4G infrastructure. Unsurprisingly, the banking segment is following the trend and is embracing changes in digital revolutions by applying them in daily banking services.

Technology is guiding the way customers choose to interact with their banks in retail banking. Customers now log in to their bank accounts via personal computers, tablets, mobile phones, and even social media. Therefore, a combination of digitisation and retail products forms an omni-channel banking strategy for banks to retain customers in the future.