UAE Banks Falling Short – Experts

The UAE’s retail banking sector recorded a five per cent rise in profits in 2011 compared to the previous year, according to a recent report released by the Boston Consulting Group (BCG). Although revenues during the period dropped by two per cent, the sector is reflecting a steady and stable growth trend, said BCG.

“[The industry] has witnessed stable growth since 2010, and growth increased in 2011,” said Farhad Irani, head of retail banking at UAE-based Mashreq. “And the first quarter of this year gives us reason to be cautiously optimistic. Vectors are pointing north,” he told Gulf Business in an exclusive interview.

He attributed the growth to a number of factors including an erosion of bad debt, stabilisation of the property market, and an increase in the number of prudent and responsible borrowers.

The recent guidelines issued by the UAE Central Bank to prevent banks from over lending to individuals also promoted better practices, he said.

“The biggest target for banks in the UAE is individuals from the sub continent – they constitute 60 to 65 per cent of the lending segment. And this segment continues to grow strongly. Their interest in Dubai has increased not just on a personal level but also at an investment level, ” he added.

But while the sector’s growth may be steady at the moment, BCG, in its report, warned that GCC banks are falling behind international standards when it comes to customer service.

“In terms of customer service we still see a lot of possibility for improvement,” Reinhold Leichtfuss, senior partner and managing director of BCG’s Dubai office told Gulf Business.

According to Irani, the UAE retail banking sector has had an easier time than its counterparts in other regions such as Asia Pacific in the last few years.

“That’s because growth was superlative; the high tide came in and all boats went up pretty quickly. This was probably true of 2007 and 2008. In that circumstance it was all about capacity and processing rather than service,” he explained.

The high entropy level, especially in the middle market segment, is also to blame for the poor customer services, said Irani.

“Customers have churned and staff have churned as well, and hence there’s been a fair amount of turmoil in the sector. When you have entropy, service always suffers,” he added.

The UAE has also been slow to adopt technology and hence “the entire engagement process is a little yesteryear,” said Irani.

“The market is also very competitive – there are 51 odd banks and perhaps 35 of them operating in the retail space. The need to get new products, new services and beat the competition is so hectic that perhaps one forgets the nuances, which could lead to a service lapse,” he added.

But banks have to focus on enduring growth rather than short-term growth to attract customers, warned Irani.

This is especially true since competition only looks to increase further, he said.

“The market is somewhat finite and if you look at what’s going around within the existing set of say 4.5 to five million eligible customers – new immigrants coming in, new residence visas being issued etc, it goes to show that competitiveness will increase as the market size is not increasing at a commensurate pace to the increase in activity.

“And the worry we have is that there should not be price wars or offers that infringe on credit policy or credit ethics because that can hurt the entire industry,” he said.

To differentiate itself from the market, Mashreq has been focusing on improving its services, providing value to customers and working towards providing “realistic innovation,” said Irani.

In terms of customer service, the bank has empowered its front end division to take immediate decisions; has laid out clear instructions on the time taken to respond to a complaint; and has developed a process for the front end to work in tandem with the middle and back end.

“In the long term, it’s the service that translates into trust and ingenuity, that creates a franchise,” said Irani.