Smaller lenders should consider merger and acquisition options in the UAE's over-banked market to gain scale, Shayne Nelson, the group chief executive of Emirates NBD said. This would allow them to compete with larger banks who are investing in digital transformation of services that could stifle business opportunities for smaller institutions.
"For the size of the economy and the size of the population, there are too many banks," said Mr Nelson, who heads the biggest bank in Dubai by assets.
"There is a necessity for those banks to merge over time. Frankly, the sooner they do it, to me, they will be in a better position."
The fast-paced digital evolution of the banking industry will also directly affect banking jobs and lenders such as Emirates NBD, which are changing how they operate and reassessing processing jobs.
Financial institutions such as Emirates NBD and Dubai-based Mashreq want to leverage advancements in artificial intelligence, and are among larger financial institutions committed to digitising services and cutting costs.
Emirates NBD plans to invest Dh1 billion on technology over the next three years.
These initiatives come as bank profits in the country remain under pressure amid slower economic growth and a slump in oil prices.
As more banks such as First Abu Dhabi Bank (FAB) – one of the top lenders in the region formed as a result of the National Bank of Abu Dhabi and First Gulf Bank merger – start investing in digitisation, it will become even harder for smaller institutions to remain viable and maintain growth, Mr Nelson noted.
"If I'm going to spend Dh1bn on technology – arguably we are the best digital bank in the region – and FAB is going to do the same thing, which they will …. How the small guys [banks] can compete: What is their niche going to be?" he said.
Between Emirates NBD and FAB they have more than 40 per cent of the market share already, according to Mr Nelson.
There are 46 commercial banks in the UAE and nine international banks have their representative offices in the country, according to the Central Bank of the UAE website.
"You got to build it and to do that you have to spend money. You need big amounts of capital now to fund the launch [technology initiatives]," he said. "Where is your market if you are going to be small?"
The logic and the need for consolidation, he said, was very clear in the market. However, complications in shareholding structures sometimes prevent the banks from merging with or acquiring other institutions.
"Reality is different to the necessity sometimes because shareholdings are difficult. Eventually, there will be mergers out of necessity, and scale will become more important," he explained.
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Investments in technology are timely and aimed at serving customers better. But the digital revolution will not come without human cost and Emirates NBD expects some job losses, Mr Nelson said.
"I don't know the number. We did not put this [technology investment] programme together around how much cost we will cut," he said. "Do I think there will be some low-level processing jobs gone over time? Yes I do."
Emirates NBD is the second Dubai lender to say there will be job losses as a result of financial institutions pressing forward with technology adoption.
Mashreq, one of the oldest lenders in the country, will shed 10 per cent of its workforce of more than 4,000 in the next 12 months as investments in technology have reduced reliance on human resources, its chief executive Abdul Al Ghurair told The National last week.
"From the industry's perspective, we will see a shift in the jobs away from processing into areas like advisory. We will see different types of jobs evolve, but we will lose some processing jobs and there's no doubt about that," Mr Nelson said.
Emirates NBD, which plans to approach the banking regulator in Saudi Arabia next year to expand its presence by 20 new branches in the kingdom, has not increased its branch network in the home market for many years.
About 92 per cent of the transactions that go through Emirates NBD are processed via the bank's digital platforms.
"We are pulling down the number of people in branches because the transaction volumes are dropping. People don't want to go to branches," Mr Nelson said. He added that the UAE economy however, is still very heavy on cash and cheques and in the medium term there will still be a place for branches, but they will be significantly electronic and self-serviced with an emphasis on advisory services.
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