DUBAI: Farid Al Mulla, deputy head of consumer banking and wealth management at Emirates Islamic Bank (EIB) said low interest rates will support domestic and regional recovery as the global economic outlook continues to improve during the COVID-19.
He told Zawya in response to emailed questions that the bank expects credit growth to gradually pick up in line with improving activity throughout 2021, coming from expected real GDP growth of three percent in Dubai and 1.9 percent in the UAE.
EIB is observing an increase in demand for bank retail finance products as the UAE’s economy recovers: “In particular, we have seen demand for home finance increase significantly due to growing activity in the secondary real estate market,” he said.
“With the UAE’s COVID-19 vaccine rollout accomplishing significant progress already, we remain confident of continued and accelerated recovery,” he told Zawya, adding, the country had seen ‘a massive policy response’ from its leaders which had helped lift markets.
Regarding the impact of low interest rates and the US Federal Reserve’s decision to leave interest rates low, he said: “The declining rate environment coupled with economic slowdown impacted the financial sectors’ top line in 2020. Nevertheless, we envisage a low rate environment, which anchors low borrowing costs in the Gulf that will support domestic and regional recovery amidst an improving global growth outlook for 2021.”
Al Mulla highlighted the role of his bank in pandemic-impact support, saying Emirates Islamic had offered payment deferments to nearly 40,000 customers affected by the economic impact of the virus through job loss, unpaid leave or reduced salary, as well as dedicated support to customers in vulnerable circumstances as they navigated the crisis.
Role of Islamic banks
Al Mulla highlighted the role of Islamic banks in supporting customers, saying there had been an indication that customers felt more supported by them than conventional banks, which was demonstrated by the 2020 Islamic Banking Index by Emirates Islamic.
“Banking consumers continue to rate Islamic banking perception better on emotive factors as they seek support and stability during these difficult times. According to the Index, Islamic banks are observed to be more supportive of the community compared to conventional banks, with four in 10 respondents (40 percent) of a UAE-wide poll strongly agreeing that Islamic banks support the community in meaningful ways in comparison with 32 percent who felt that way about conventional banks.
“Islamic banking also continued to outperform conventional banks on being trustworthy with 45 percent of respondents strongly agreeing that Islamic banks are trustworthy, compared with 39 percent for conventional banks,” he said.
Overall, usage of Islamic products has grown by 13 percentage points in the last five years, said Al Mulla. “We remain optimistic of accelerated growth, especially with the tremendous opportunities in promising Islamic sectors such as halal food, halal beauty and modest fashion, that are expected create significant new demand for Islamic finance.
He said the UAE Central Bank extending the applicability of its Targeted Economic Support Scheme (TESS) until June 30had further boosted economic recovery.
“Overall, this initiative has been instrumental in limiting the impact of the virus through a range of integrated support measures related to funding, liquidity, lending and capital,” he said, adding, the bank had reported a strong performance in Q1 2021, with a profit of AED 212 million ($57.7 million), up 37 percent year-on-year and up 224 percent quarter-on-quarter, while maintaining a strong balance sheet.
This followed a net loss of AED 482 million for the full year of 2020.
“We remain confident that consumer confidence and business activity will continue improving.”
Asked whether he foresaw an increase in non-performing loans, he said: “Emirates Islamic has always approached our provisions and non-performing financing management prudently and proactively. We expect to continue to maintain strong coverage ratio as we weather through the challenging market conditions.”
The bank is also looking forward to increased momentum as the UAE prepares for the opening of Dubai Expo 2020 in October, he said.
The widely reported story of business impact of the pandemic is the shift to digital from physical channels from consumers, and Emirates Islamic was no exception. The bank saw a marked increase in usage of online and mobile banking channels in 2020, and now more than 70 percent of customers access the bank’s services in this way.
“While no one could have predicted the events of 2020, leading banking innovation has always been at the top of the agenda for us,” said Al Mulla.
“Our group’s previous decision to invest AED 1 billion, over a three-year period to digitalise our customer interactions and processes to deliver better experiences strongly helped us withstand the pandemic’s challenges,” he added.