Tougher times for UAE banks to force a rethink on service levels

UAE banks have come through a tough couple of years since the global financial crisis but face further pressures on profit margins from ‘regulatory pressures to raise capital’ and ‘an inability to deliver high returns to customers’, said Citi regional consumer banking head Sanjoy Sen at a banking conference in Dubai today.

But the good news for the local banks came from Ernst & Young’s Salmaan Jaffrey whose survey found that fees and charges were not what most bothered customers, who are more worried about personal service, so banks can carry on overcharging.

International standards?

However, Mr. Salmaan warned that in an environment where banking margins are tighter due to increased competition and higher capital requirements, international banks are struggling to deliver global standards of service with national staff imposed upon them and, perhaps it should be added, non-Western expats.

These observations are not new but worthy of further analysis. UAE banks are having a much tougher time in selling wealth management products since the global financial crisis, as returns for investors are far more modest than they used to be and clients have less trust in them.

Maybe some local banks ought to go back to their core products and leave wealth management. In the UAE clients are likely to return to the local stock markets and real estate in due course, and are buying gold and silver now. Emirates NBD has realized that with its hit gold certificates product.

Global financial markets may not be in a position to deliver high returns for many years, and the banks could simply be offering products that their clients do not want for good reasons.

On the other hand, an investment in new banking technology – particularly related to mobile phones and the Internet – does hit the twin goals of cutting costs and raising service standards if correctly implemented. According to Mr Sanjoy this is where Citi is putting its investment for the future.

High-tech future?

Could the UAE banking model of the future be a highly sophisticated exchange house using multiple delivery channels? Most probably so long as that can be done by reducing the number of highly paid staff employed by the banks to save on costs.

That might make service faster, which E&Y found as customer priority number one. But it is at odds with priority two for more friendly staff. And will the smaller local UAE banks be able to deliver on technology in the way a giant like Citi can through global sourcing?

Well, the good news for the banks is that their historically high profit margins in the UAE will give them room to make these changes but those that fail to react will find themselves left behind. Consolidation into bigger banks may also be a part of this process.