Revenue of UAE banks increases as digitalisation pays off across Gulf

Saumitra Sehgal, Head of Financial Services in the Middle East at Roland Berger, a global strategy consultancy, said that the revenue of the UAE bank branches is the highest in the region at $18.6 million per branch for retail services.

Sehgal added, in statements to Emirates News Agency (WAM), that digital transformation has enabled Gulf banks to reduce the number of their bank branches by 328 branches over three years, as the number of bank branches in the Gulf countries decreased from 4,067 branches at the end of 2019 to 3,739 branches at the end of 2022.

He pointed out that the banks operating in the UAE were able to achieve the highest number of branches that were merged and reduced with the support of digital transformation from 2019 to the end of 2022, as the number of branches decreased by 157 branches, Saudi Arabia 82 branches, Bahrain 57 branches, Qatar 20 branches, and Kuwait 20 branches, while Omani banks increased their network by 8 branches.

Sehgal continued, “The UAE has been one of the leading countries in reducing the number of bank branches by relying on technology and digital transformation over the past three or four years, and there is still a possibility of reducing branches by 10 to 15 percent within two years.”

He said that banks in the Gulf countries have been reducing their branches by up to 10 percent on average over the past few years due to the rising trend of digital customer interaction. The purpose of bank branches has shifted towards more complex matters like obtaining mortgages, as simple transactions have become easier to complete digitally.

He said that digital transformation in the banking sector of Gulf Cooperation Council (GCC) countries is essential for both banks and customers. Customers favour digital banking, while banks view it as a way to enhance customer service and profitability by reducing operational costs.

Sehgal then looks at the number of bank branches per 100,000 people in the GCC countries. This number ranges from 7 to 12 branches. He predicted that the number of branches will continue to decrease and that this decrease will vary from country to country depending on what has been achieved in previous years. For example, the United Arab Emirates has already reduced the number of bank branches by more than 23 percent.

He also pointed out that the cost of bank branches in the GCC is high, with annual costs reaching around $14.8 billion. He argued that by merging branches, reducing their number, and accelerating the adoption of digitization, GCC banks can save more than $3 billion per year in branch costs.

Sehgal discussed the possibility of further consolidating branches in the Gulf region, reducing the total number by 623 branches in the coming years. This includes an additional 80 branches in the UAE, which is one of the leading countries in digital and technological transformation in the banking sector. The UAE has already made significant progress in this area in recent years.

He talked about the size of the branch network in the Gulf Cooperation Council countries, measured by the number of branches per 100,000 people. In this context, the share of every 100,000 people in the UAE was about 7.2 bank branches, while it was, for example, 12.8 branches in Kuwait.

The Emirati bank branch network topped the productivity or revenue in the retail sector, as the revenue per retail branch reached around $18.6 million after a 27 percent increase compared to its levels at the end of 2019.

Regarding fully digital banks that do not have physical branches, he indicated that their role is expanding with younger age groups, and thus their role may increase in the future. However, they will not be the only form of banks as traditional banks that own branches will continue to exist and grow.

Islamic treasury Sukuk continues to achieve exceptional results:  The United Arab Emirates, represented by the Ministry of Finance (MoF) as the issuer, in collaboration with the Central Bank of the UAE (CBUAE) as the issuing and paying agent, has announced the results of the Islamic Treasury Sukuk (T-Sukuk) auction, which is part of the Islamic T-Sukuk issuance programme for Q1 2024 as published on the ministry’s website.

The auction witnessed a strong demand through the eight primary dealers for the 3-year and 5-year tranches of the Islamic T-Sukuk, with bids received worth AED7.83 billion and an oversubscription by 7.1 times. The success is reflected in the attractive market-driven prices, which was achieved by a spread of 4 bps over the US Treasuries with similar maturities.

The Islamic T-Sukuk issuance programme will contribute to building the UAE dirham-denominated yield curve, providing safe investment alternatives for investors, strengthening the local debt capital market, developing the investment environment, as well as supporting sustainable economic growth.

WAM