The global economy is facing uncertain times. The economic challenges range from a crash in oil prices albeit a marginal recovery, slowdown of Chinese economy, negative interest rates, drying up of liquidity in GCC markets, US putting brakes after a single hike, currency wars, and “disruptive” developments in global banking arena. Recently, experts have coined a new acronym “VUCA” (volatile, uncertain, complex and ambiguous) to describe the current scenario.

Emirates Institute for Banking and Financial Studies (EIBFS), organized a conference last week titled “Riding on the roller coaster” in which senior bankers and financial experts discussed the impact of the major headwinds in the UAE and global economies. More than 60 top level bankers attended the conference.

Talking about the effect of prolonged lower oil prices on the banking sector, Dr Mondher Bellalah – Executive VP, Chief Risk Officer- United Arab Bank, said it could impact asset quality, drying up of liquidity and the possibility of slower growth in loan book. “The drying up of liquidity in GCC is being reflected in a significant rise in deposit cost across the banking sector,” he said.

However, the current scenario is not all negative. Abhishek Shukla, Head of Investment Research, National Bank of Abu Dhabi, while talking about the headwinds in the global and regional markets pointed that the fall in region’s markets in the last one year have made the valuations attractive for long term investments. “Disciplined systematic investments could be the right way to tackle the high volatility in the markets,” said Shukla.

Digital age

Yasir Yilmaz, Head of Financial Services, SAP, shared his views about how “disruptive developments” are changing the face of banking across the world, and these are a cause of optimism. The digital age, he said, is expected to result in higher levels of automation, especially in front end banking. Also, “advanced analytics will help a bank in saving costs and increased sophistication in product development by targeting the right products for the right customers,” Yilmaz added.

Dr Allen Baby, a faculty member at EIBFS, who introduced the conference topic, raised concerns on the negative interest rates in the developed world which is likely to have an impact on the long term viability of the banking industry by discouraging depositors and investors. Fintech and peer to peer lending are among the new challenges that could change the face of the banking industry globally in the years to come, he said.