EY MENA’s H1 2023 report highlights strong YoY growth in MENA banking, with a 12.2% increase in net assets and a 30% surge in net profits.

According to the most recent banking report from EY MENA, the Middle East and North Africa (MENA) area has experienced exponential growth year-over-year (YoY).

Middle East and North Africa

The EY MENA H1 2023 Banking research, as the research is named, shows a 12.2 percent gain in net assets and a 30 percent YoY surge in net profits. Additionally, year-over-year returns on equity experienced a record increase of 6.18 percent. Not to mention the 0.2% increase in the net interest margin.

The banks in the area saw an increase in operating income of 18.8% as a result of this strong performance. The loan-to-deposit ratio (LDR) has risen by 5.43 percent, while total deposits have climbed by 6.08 percent.

It is anticipated that non-performing loans (NPLs) will stay where they are in 2023 due to banks continuing to lend with discretion. This year, with the continuous implementation of Basel IV laws and a greater emphasis on combating financial crime, regulatory monitoring will be in the limelight. This is on top of cybersecurity, anti-money laundering (AML), and electronic know your customer (eKYC) procedures.

It is anticipated by the industry that financial market infrastructure projects, such EKYC platforms and open banking initiatives throughout the GCC, will continue to accelerate.

New developments

“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,” states Charlie Alexander, EY MENA’s leader in financial services.

“Amid continuous efforts to diversify the economy, this development is becoming more and more significant to the region’s total economic growth. The majority of GCC nations are pursuing net-zero roadmaps, which is a positive development as it has increased demand for sustainable finance, which is essential for the shift to clean energy.

A significant increase in non-oil activities and strong oil and gas prices have improved the region’s prospects and bolstered credit demand. Other noteworthy patterns that are prevailing in the banking industry are:

  • solid financial circumstances
  • public investments
  • an expected improvement in the state of the world economy
  • developments in technology

Growing digital banking options to fulfil changing customer demands

For the MENA banking industry, digital transformation is the way of the future. Through chatbots, artificial intelligence (AI) is transforming the financial services sector in the area by delivering quicker and more individualised banking services.

Digital banking, smartphone payments, open banking, tokenization, digital currencies, blockchain, and sustainable finance are a few more top priorities.

Additionally, banks are creating new customer experience programmes in an effort to change the focus of competition from products to lifestyle banking. To enhance their services, this entails implementing chatbots and loyalty schemes as well as utilising the newest techniques for client analytics.

In order to meet the constantly changing needs of their clients while striking a balance between risk management and customer experience, MENA banks are spending more and more in digital banking solutions. Banks are improving their capacity to tolerate possible financial risks and adhere to regulatory obligations by fortifying their risk management technology and processes.

To minimise inefficiencies, banks can develop connections between customer-facing operations and back-end servicing through front-to-back modernization, cloud migration, and robotic process automation.

The newly created positions in the financial sector

“Over the past six months, we have seen an accelerated adoption of growth of digital transformation and implementation of robust risk management practises in the region, which should not be forgotten in the frenzy of growth,” says Houssam Itani, leader of EY MENA banking and capital markets. Financial institutions are also becoming more open and forthcoming about the dangers they face and the effects they have on society and the environment.

The function of financial regulators is likewise changing, as we can see. In order to support it, central banks are introducing new technology and solidifying their fundamental responsibilities. Additionally, they are taking on a larger role in fostering banking innovation by putting in place regulatory frameworks that support open banking, fintech, and the infrastructure of the financial markets.

“Real-time payment systems, central API infrastructure, E-KYC platforms, and many more are examples.” It is anticipated that the changing regulatory landscape would allow for measured expansion that strikes a balance between financial stability and innovation.

The banking industry in the UAE is changing due to technological improvements

In the United Arab Emirates (UAE), the banking industry is expanding significantly. The financial results for 2022 show a 31% increase in net profits and total assets due to robust growth in loans, advances, and deposits as well as a rise in net interest income. The UAE banking sector has made significant investments of over AED 131 billion in technology efforts, which have been essential in drawing in digitally literate clients from both the individual and corporate sectors.

According to the report, GCC banks will continue to be strong in 2023. It indicates better economic times. In particular, taking into account how long the government is expected to retain its support of the oil-driven economy. Higher interest rates will probably cause inflation to decline in the meantime.

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