Corporate and Investment Banking (CIB) accounts for more than 70% of total assets and 55% of revenues in the UAE.
Corporate and investment banking is about to face a new storm in the wake of rising inflation, reduced availability of capital and increased competition.
More than 50% of the revenues of 15 of the 20 largest banks in the Middle East and North Africa region come from the corporate and investment banking sector, and it is necessary to maintain the stable performance of this vital sector in the work of these banks.
Dubai United Arab Emirates: Arthur D. Little, the world’s leading management consultancy, has released a new report highlighting the challenges and opportunities that illustrate the continuing and growing importance of the corporate banking segment for banks in the UAE. The report, titled ‘The Pursuit of Excellence in Corporate Banking’, explores the expected impacts of the recent global turmoil, as well as the options available to banks to enhance and grow their corporate and investment banking (CIB) businesses.
Corporate and investment banking in the UAE represents about $635 billion in total assets and $15 billion in revenue. The assets of corporate and investment banking services are about 5 times the assets of retail banking services. The findings of the new report indicate that regional banks focus their external contacts primarily on the segment of individuals, whether in the field of financial technology, strategy, digital transformation, products, or applications. In addition, corporate banking is often seen as a niche area and, as a result, innovation is often thought to be concentrated in the retail banking sector. The report also points to the increasingly complex, rapidly evolving and competitive environment for the corporate and investment banking sector, which includes a variety of challenges stemming from structural trends in the sector as a whole, the effects of the COVID-19 pandemic, and the war in Ukraine.
The report highlights the importance of banks focusing more on the corporate and investment banking sector for several important reasons, the first of which is that there is an upcoming inflationary storm that will have clear effects on this segment, in addition to the effects resulting from environmental, social and corporate governance (ESG) practices. While the retail banking sector is more competitive, the corporate and investment banking sector can still benefit from several growth drivers, as customers today face increasingly complex problems that require new solutions from banks. In addition, the services provided to the small and medium business segment remains below expectations. Also, the potential for digital improvement is still mostly untapped, in addition to the existence of various opportunities to enhance innovation in the fields of “blockchain” and cryptocurrencies.
Philipp Debaker, Managing Partner and Global Head of Financial Services at Arthur D. Little, said: “The region provides a positive environment for tangible transformation in the corporate and investment banking sector, which represents around 70% of total assets in the GCC amid high hopes. On the economic recovery and massive spending by the public and private sectors. As shown in our new report, banks must expect more consolidation in the sector due to shrinking margins and increasing regulatory requirements. Banks seeking to accelerate the path of transformation and keep pace with the demands of the future need to redesign Its business models are to maximize average revenue per customer segment, protect capital and enhance risk management flexibility through better use of FinTech solutions.”
Stéphane Olcacar, Associate Director and Head of Corporate and Government Financial Services at Arthur D. Little, said: “The rapid developments in the digital landscape have increased the rate of disintermediation and dictated more need for cross-sector expansion. As a result, banks must It is seeking to transform its business models in much the same way that automakers – and many other sectors – did during the 20th century.This means moving away from the integrated business model and outsourcing the development and implementation of plans that enhance value creation, except for some strategic moves, such as Design, Assembly and Control However, in the midst of these transformative trends, banks still have unprecedented opportunities to expand their business, reduce costs and enhance their ability to respond quickly to developments, but as was the case in the automotive industry, this can lead to additional challenges.” .
Develop a sustainable business model
The report identifies four common strategic imperatives for banks:
- Banks should rebalance their portfolios based on diversification, return and risk objectives, and monitor them at the customer level. Banks must also anticipate balance sheet order and Tier 1 capital impacts, which requires them to develop treasury and liquidity management capabilities.
- Banks should work to improve the average revenue from each customer by exploring all opportunities to (re)activate the services provided and retain customers, and enhance cross-selling strategies and product pricing. Banks should also consider variable rates and non-use fees for facilities to reflect upward rate trends.
- Banks should engage customers outside of credit through distressed mergers and acquisitions, the debt capital market (DCM), or ESG transition financing. Banks must be prepared to increase their non-performing loans and manage restructuring plans. Sector specialization will also be required to properly assess needs and the level of risk.
- Banks must streamline their institutions, products and activities. Reducing fixed costs requires the use of digital tools to optimize, automate and/or outsource part of the value chain processes, either to suppliers or shared facilities.
At the same time, successful corporate and investment banking strategies must leverage the bank’s core assets and capabilities to create a distinct and actionable vision.
Anticipate a new approach for the corporate and investment banking sector in the GCC
Digital transformation trends have increased the rate of disintermediation and imposed more need for expansion across sectors. In response to these transformative forces, banks still have an unprecedented opportunity to expand their business scope, reduce costs and enhance their ability to respond quickly to developments.
The report indicated that as a result of the continuous follow-up by local regulators in the financial services sector, the promotion of banking accelerator packages and programs for emerging companies, and the rapid development of the financial technology system, the corporate and investment banking services sector in the UAE is expected to succeed in adapting to these new trends. quickly and adapted in line with the requirements and specifications of local markets.
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