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Banking in the Middle East

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I'm in Bahrain this week, chairing an annual conference called MEFTEC, the Middle Eastern Financial Technologies Exhibition and Conference.  If you're interested in banking, technology and the Gulf States, then here's my opening speech by way of background:

Leveraging technology through turbulent times

Welcome to MEFTEC 2009, the fifth year that Bahrain has hosted the Middle East’s largest technology conference and exhibition.

This year’s conference has the theme 'Leveraging technology through turbulent times', which is based upon the fact that we face a far more challenging year than most of our previous meetings. All of us know that 2008 proved to be one of the toughest years economically and financially in the history of our dealings with financial services. The fall of Lehman Brothers in September signalled a wholesale restructuring of financial services globally, especially as the whole nature of investment banking as a standalone business collapsed.

South Asia, Middle East and Africa – the SAMEA Region – has been just as impacted by this crisis as others, as the globalisation of commerce and finance became clear. Gulf Bank’s bailout in Kuwait in October was just one example. Although the issues were created by currency derivatives in euro-dollar contracts, the impact was within the region. This was soon followed by UAE’s $19 billion top-up of the financial system in December, bringing the total investment to over $32 billion so far. Equally, Saudi’s first budget deficit of $17.3 billion in 2009 shows the strains of oil prices, the uncertainty of the dollar and the other concerns in the region overall.

Nevertheless, any thoughts of a GCC slowdown based upon Saudi Arabia's news is irrational, as the debt-to-asset ratios challenging most Western governments are not the same in the region. For example, Saudi Arabia has a $157 billion budget surplus, thanks to the heady days of high oil prices, along with an estimated $433 billion in net foreign assets.

This demonstrates that the strong balance sheets of the GCC far outweigh the risks and provide a strong bed-rock for growth, especially when compared with American and European economies. In fact, the more likely imp[act of the crisis on SAMEA is going to be the withdrawal and sale of divisions of foreign banks across the region, rather than the collapse or closure of local and regional banks.

Although SAMEA banks’ approach to the markets and lending will be cautious therefore, the region is in a strong position from an IT perspective. Total spending by Middle East banks in 2008 through 2009 was around $2 billion, growing at an annual rate of 15%, among the highest in the world. Meanwhile, a recent survey of Asia Pacific CIOs by research firm Financial Insights, found that over two-thirds of the banks expect to increase spending on technology in 2009.

This is why most analyst firms estimate that bank spending on technology will vary between an 8% to 12% uptick across the region, compared to less than 2% globally.

And what will SAMEA banks be buying?

First and foremost, a lot of infrastructural change. The fact that the GCC has agreed to standardise upon a single currency to be called the khaleeji (خليجي ) meaning “of the Gulf”, with the symbol of a “G” with a vertical double stripe.


This khaleeji will be the legal tender for Saudi Arabia, Kuwait, Bahrain, Qatar, and the United Arab Emirates from 2010, with Oman yet to commit to when they will join.

The road to a single currency has not been an easy one though. Since the first steps were taken back in 2001, it has been a slow march to GCC monetary union and, even today, it is still not certain as Kuwait placed the plan in doubt after the Gulf Bank failure and the drop of the tie to the dollar placed the plan in doubt. Equally, the ratings agency Moody’s also noted that the advantages of a single currency in boosting intra-region commerce and trade, as seen in Europe with the Euro, will be less obvious in the GCC.

However, it does appear that the khaleeji project will remain high on the agenda through the next few years, even with the backdrop of the global credit squeeze.

This means that, apart from this project, the priorities for the region’s bank will vary between those banks that are seeking new business and enhancing services, versus those who focus upon balance sheet and costs. This is not to say that these are mutually exclusive, but there will be a clear dichotomy between banks that are investing for growth versus those who are seeking to just keep the engines running through 2009.

So here are the top three things that all banks in SAMEA will also focus upon:

#1 Networks

IP networking and network underpinnings will be common to all banks because connectivity, and particularly the speed of connectivity, is critical to all financial institutions. Low latency in the investment markets for speed of trade execution through to leveraging web technologies for better customer service in the retail markets will be seen as a critical and core competence. Therefore, all banks in SAMEA will see this as priority #1.

# 2 Systems Rationalisation

Server consolidation, virtualisation and grid technologies will also be a critical aspect of improving services and streamlining costs. SAMEA banks will see the reduction of distributed servers and data centres, to consolidation into a few centres as being a key focal point. This is demonstrated best by a case study of HSBC. In 2003, the bank had 130 data centres in over 80 countries. By 2008, they had rationalised these centres down to just 20, and aim to reduce this to six by 2010. Why? Because the bank is run on the network and large data centres provide global platforms for reducing costs, focusing skills in a few centres of excellence, improving resilience and capabilities through economies of scale, and allowing any new regional or local business to be established rapidly and easily by just layering them upon the network. These are critical aspects for all banks to focus upon in 2009.

#3 Outsourcing

We have seen a move to offshoring and outsourcing for many banks over the past few years, but 2009 will see a major increase in the focus of moving non-strategic services out of the organisation in an effort to reduce costs. The typical areas will include more applications maintenance, ATM network management, server management and co-location and proximity services. Equally, as more mergers and acquisitions occur, expect to see the acquired operations being moved out of the bank to outsourcing partners.

These three areas of technology operations will be the top three focal points for most banks, whether investment or retail.

The good news is that, on top of these developments, a number of SAMEA banks who have discretionary spend will be able to invest in disruptive technologies, such as social networks, video over broadband, branch 2.0 or even 3.0, mobile financial services, wealth management online advisory services and more.

These latter areas have been a theme during the 2000’s, but will be even more in vogue in 2009. To take just one example that covers all of the above, deploying new network-enabled financial services across multiple devices will be a major point of differentiation.

This has been illustrated recently by BBVA in Spain, who launched a service in 2008 that offers an ability to use personalisation with total customisation for all of the bank’s services. The service offers a mix of rich financial management tools and personalization features, integrated with personal recommendation technology. There are basic payments and banking services, as well as budgeting applications, alerts, aggregation services, recommendation engines, comparison tools, financial widgets, and all of this is device neutral for both internet and mobile access.

If you have not seen the service, then I recommend you visit my blog,, and type in “BBVA” in the search area at the top left of the blog’s homepage. Alternatively, join my presentation on banking technologies tomorrow, where I will discuss this in detail.

Welcome to MEFTEC 2009.

Chris Skinner Author Avatar

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog,, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...

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