The banking sector in the Middle East and North Africa (MENA) has surged significantly with a 30% rise in net profits and a 12.2% increase in net assets year on year.
That is according to Ernst & Young’s newly-published MENA H1 2023 Banking Report which shows that banks in the GCC are remaining resilient, in 2023, despite global uncertainty including economic shutdown risks and liquidity shortages.
In 2023, the total banking market in the MENA region is expected to reach US$2.8t, with the top five markets (Saudi Arabia, UAE, Qatar, Kuwait and Egypt) accounting for more than 70% of the total market. The MENA region is also forecasted to become one of the world’s fastest-growing banking markets, with a compound annual growth rate (CAGR) of 9.8% from 2020 to 2023.
Meanwhile, inflation in the GCC is expected to fall to 2.4% in 2023 and 2.0% in the medium term, down from 3.4% in 2022. The region averaged 5% to 6% in 2022, the highest in more than a decade, but far lower than many countries such as USA, UK, France, Germany and Italy.
Key drivers
Strong oil prices have supported the region’s wider economy, which, in turn, has had a positive effect on credit demand in the region. Looking forward, regulatory reforms along with a growing demand for digital banking services are expected to drive further growth in the sector.
“In the future, the Middle East and North Africa (MENA) banking sector is expected to grow largely driven by the increasing demand for banking services and the growth of digital banking. Additionally, regulatory reforms such as the introduction of Basel IV, are expected to have a positive impact on the sector,” the firm said.
The report recognises that Artificial intelligence (AI) is already reshaping the MENA financial services industry through faster, more personalised banking services via chatbots. Key areas of focus include digital banking, mobile payments, open banking, tokenization in addition to digital currencies, blockchain and sustainable finance.
The move towards lifestyle banking
Another notable trend according to the report’s researchers has been the shift towards customer experience initiatives with the aim of directing competition away from products to lifestyle banking
“MENA banks are increasingly investing in digital banking solutions to address the ever-evolving needs of their customers while balancing customer experience and risk management. By strengthening their risk management technologies and systems, banks are boosting their ability to withstand potential financial risks and comply with regulatory requirements,” Ernst & Young said.
Meanwhile, banks in the region continue to migrate to the cloud, further optimizing their digital processes. In turn, front-to-back modernization, cloud migration and robotic process automation have becoming increasingly important as banks look to improve efficiencies by connecting customer-facing operations and back-end servicing.
See the full banking report here
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Image source: Ernst & Young
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