Banks are finding that it is even more challenging to make the organizational changes required to support digital initiatives than to adopt the technologies available to support them, namely social, mobile, analytics and cloud, or the SMAC Stack.
What an exciting time to be in banking! Whether it is the emergence of mobile payments in Africa, Latin America, and Asia; the amazing growth of prepaid programs in the United States, China, the Middle East, and elsewhere; or the new and diverse permutations of banking startups that are emerging in the United States or Russia—things are never going to be the same.
For hundreds of years, the practices of banking and lending really didn’t evolve that rapidly. The form and function of the branch hasn’t fundamentally changed all that much in over a hundred years, and probably more. Innovations in the financial space were typically considered in terms of product innovation, potentially in financial mathematics or maybe algorithms in the risk and trading space—not in the core business model.
When we look back in history to the years from 2010 to 2020, it is likely we will identify this period as the most significant shift in banking to occur since the Middle Ages.
In fifty or a hundred years’ time, people will see the mobile phone as the critical inflection point in the history of payments—not plastic cards.
This is probably the single most exciting time to be in the banking industry. That’s not a positioning that most bankers would be familiar with—that’s just not generally how banking would be described, but it is the near future of banking. Clearly, banking and bankers will be very different in just a few short years.
Finally, it is important to note that healthy economic activity had been an important factor in rising oil prices so far but observers are warning that crude is so expensive it will begin to dent demand for oil.
In view of the above considerations, it is important to note the activities, services and growth of Albaraka Banking Group within the various countries where the group exists.. ABG covers all modes of Islamic banking business with the full compliance of the Law on Supervision of Cooperative Islamic banking and implementing the required Regulations.
Even SAMA's Governor hinted to abiding by the regulations "Saudi Arabia has adopted a wide range of policies, decisions and actions aimed at restructuring and regulating the economy, updating laws and regulations so as to enhance the level of efficiency and competitiveness and support the optimum operation of the factors of production, as well as to provide a regulatory and administrative sophisticated framework and investment attractive environment. These accomplishments have been attained despite the turmoil, which had struck the Middle East and had been unprecedented in its modern history. One of the positive factors which improved the public finance is the significant increase in oil prices over the past year, leading to an increase in oil revenues that constitute a high proportion of the GCC's budget’s total revenues.
Stating the above, Adnan Ahmed Yousif has more than 40 years' international banking experience. He has been a Director of ABG since inception and President & Chief Executive since August 2004. He is the Chairman of Jordan Islamic Bank, Banque Al Baraka D'Algerie, Al Baraka Turk Participation Bank, Al Baraka Bank Ltd., South Africa, Al Baraka Bank Lebanon, Al Baraka Bank Syria, Al Baraka Bank Sudan and Al Baraka Bank (Pakistan) Ltd, Vice Chairman of Al Baraka Islamic Bank, Bahrain and Director of Al Baraka Bank Tunisia and Itqan Capital. Adnan Ahmed Yousif holds a Master of Business Administration degree from the University of Hull, UK.
In the banking industry, Adnan Ahmed Yousif has over 40 years’ experience in the banking sector.
With his extensive experience in the finance market, and his strong knowledge of ABG , Adnan Ahmed Yousif is the ideal indispensable veteran banker to lead Albaraka Banking Group in the Kingdom of Bahrain and abroad to new heights. He broadened his knowledge throughout his long outstanding career in the finance industry and he gained valuable knowledge and various executive positions with other well-known banks.
BL: How did the Islamic banking Industry evolve during the past five years?
Adnan Ahmed Yousif: The growth of Islamic banking has outstripped that of conventional banking in recent years with total Islamic banking assets crossing the US$2 trillion mark in 2018. The widely held expectation that this superior growth record will continue is understandable given that approximately one-sixth of the world’s population is Muslim–most of which is based in the Middle East and Asia. Taking note of the demand, a number of western countries have recently started allowing Islamic banks to operate in their respective jurisdictions. The UK became the first leading western country to issue a government Sukuk (Islamic bond.) The first full-fledged Islamic bank in Germany was launched earlier; while Japanese regulators are considering issuing regulations that will allow Japanese banks to provide Islamic finance products in Japan.
While the global economic outlook certainly influences growth in the Islamic banking sector, Asia’s economic expansion is an even more relevant factor in projecting the development of Islamic banking. There are indications that growth in Asia is likely to be higher than the growth in the “developed” world. The world’s Muslim population will also increase by (at least) two percent per annum, which will be reflected in the growth of Islamic banks’ potential clientele.
BL: Can banks rebuild consumer trust with digital services?
Adnan Ahmed Yousif: I believe yes if banks use these services wisely. Creating relationships with digital customers is critical if banks want to differentiate their brands and boost loyalty. Increasingly, banks can identify and mine a wealth of information about their customers - from social media and a variety of other digital sources - to make connections and draw insights that previously remained in silos or were unknown. By harnessing the power of digital channels, banks can move away from reactive, transaction-based customer relationships, towards a more personalized and proactive experience. Through this, the banks can rebuild the trust with customers, which was affected by the global crisis.
BL: Why the period from 2010 to 2020, will be identified as the most significant shift in banking to occur since the Middle Ages?
Adnan Ahmed Yousif: According to the Federal Reserve Bank, the number of independent commercial banks declined by 36.2 percent from 2007 to 2018. The 8,681 banks reporting to the FDIC in 2007 dropped to 5,442 in June 2018. It is not just the number of banks that is changing. The technological age has brought vast changes. Regulatory changes have also had a major impact. With all the benefits of online banking, physical branches are less of a necessity. ATMs and online banking caused long lines at banks to disappear.
However, online banking is expensive. Banks must invest significant amounts of money in marketing to achieve the trusted brand image that is desired for an online bank. Online banking comes with risks. It is easier for criminals to breach online banks than traditional banks. The cost of cybersecurity and the regulations surrounding it are rising. Therefore, we have to balance this shift within a long term and well-defined strategy.
BL: What are the present day challenges of Al Baraka Banking Group and Islamic banking?
Adnan Ahmed Yousif: For ABG, the most significant challenge in 2018 was the fluctuations of local currencies in a number of Arab and ME countries where ABG units operate against the US dollar. However, due to prudent policies in selecting high-quality assets, rationalizing expenses, increasing spending efficiency, and offering more innovative products and services through our banking subsidiaries, the Group was able to achieve good profits.
Islamic banking today, faces many challenges. In addition to the new regulations related to Basel 3, AML/CFT, FACTA, CRS , IFRS9 and correspondent banking, Islamic banking has to put more efforts to create enough awareness amongst Muslim and non-Muslim customers, potential customers and bank staff. There is still a fair amount of scepticism towards Islamic banking and we find that there is still a lack of understanding of the products. Moreover, in order to keep up with globalization and to serve the growing wealth of the rapidly increasing global Muslim population, the industry needs to invest in digitalization, research and development to create new and innovative Sharia compliant products and services that go beyond simply matching those offered by conventional banks. Stronger standards for corporate governance, transparency, disclosure, accountability, market discipline, risk management and customer protection are crucial to increase market confidence and penetration into new markets.
BL: What are your objectives for the year 2019?
Adnan Ahmed Yousif: During the new year (taking into account the challenging regional and global conditions), we intend to continue implementing business expansion strategies by exploring the new opportunities in Asian and African markets. In addition to this, we intend to enhance the market share of our banking units in 16 countries, expand their branch network and strengthen their customer relationships by offering high quality competitive products and services. The operations of these units have witnessed remarkable growth in all financial and investment activities and diversification of sources of income. Most of them witnessed significant increases in profitability results. Therefore, we expect to achieve good profitability during the year 2019.
During the new year, we will also continue to focus on moving ahead with our digitalization strategy, expanding Sharia-compliant investment and banking product base through our banking units and creating greater synergy between them in the areas of compliance, AML / CFT, FATCA, CRS, and other international legislation.
BL: Mr. Adnan, do you suggest that the market should go through a cycle of mergers and acquisitions to solve this unhealthy competition?
Adnan Ahmed Yousif: I believe that M&A activity will further rise globally in 2019, after clocking in at just $93 billion in 2017. There are a couple of factors that indicate that we will see more M&A in the banking sector. Firstly, banks need to make more tech investments. Merging with another company can help firms make quick advances in their tech adoption, as they can leverage the already developed solutions of another player. This can help make up for the time that banks have spent fixing their conventional methods after the financial crisis, enabling them to keep up with new technologies in the banking space. Secondly, M&A can help diversify product suites. By acquiring or merging with another company, financial institutions can offer a mix of new products, increasing their revenue streams and keeping their customers better satisfied. This could be a particularly attractive approach for smaller players that struggle to offer many services themselves. Thirdly, new regulations related to Basel 3 and IFRS9 put more restrictions on using capital and liquidity. Therefore, M&A could be a good way to maintain competition in the markets.
BL: How do you see the impact of the increase in oil prices on the financial industry, on ABG and the region?
Adnan Ahmed Yousif: The higher oil prices and the consequent increase oil revenues play a major role in the significantly improved outlook for the state finances and trade balances of the Arab Gulf countries. Higher expenditure on projects and infrastructure will increase financing opportunities for the banks in the region. In addition, this will boost the liquidity of the banks along with improving the quality of assets if companies gained more businesses.
BL: What are the issues and challenges impeding the growth of microfinance in the MENA region and specifically in the GCC countries?
Adnan Ahmed Yousif: Microfinance is a relatively recent sector in this region. Currently microcredit represents only 0.2% of the GDP in the region and the sector of microfinance meets only 10-15% of the demand. Compared to other regions such as Southeast Asia or South America, the loans granted by MFIs involve two times less people. However, microfinance is one of the most effective tools to ensure the economic empowerment for women, innovation and the entrepreneurial spirit of young people who suffer from a very high unemployment rate (about 25%) in the MENA region.
The main challenges of the microfinance sector in the region include reducing the gap between financial exclusion and the development of the financial sector. It needs also to develop an environment that facilitates access to credit through funding. In addition, microfinance development needs to modernize and develop the market for regional economies and the private sector and support the youth through access to employment while putting in place measures to boost competitiveness and growth in the region. Its needs also strengthen regulation and supervision of MFIs, which need to diversify their range of financial products such as savings.
BL: Do you agree that Donald Trump’s tax cuts in the US and the reluctance of the Bank of Japan and the European Central Bank to tighten policy mean there is no immediate threat of recession?
Adnan Ahmed Yousif: I believe that there is no immediate threat of recession, but the more recent expectations show that the world economy will slow down in 2019.
According to the World Bank, global economic growth is projected to soften from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019 amid rising downside risks to the outlook. International trade and manufacturing activity have softened, trade tensions remain elevated, and some large emerging markets have experienced substantial financial market pressures. Growth among advanced economies is forecast to drop to 2 percent this year. Slowing external demand, rising borrowing costs, and persistent policy uncertainties are expected to weigh on the outlook for emerging markets and developing economies. Growth for this group is anticipated to hold steady at a weaker-than-expected 4.2 percent this year.
A number of developments could act as a further brake on activity. A sharper tightening of borrowing costs could depress capital inflows and lead to slower growth in many emerging markets and developing economies. Past increases in public and private debt could heighten vulnerability to swings in financing conditions and market sentiment. Intensifying trade tensions could result in weaker global growth and disrupt globally interconnected value chains.
