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'Arab banks are well prepared to counter cyber-security challenges'

Wissam H Fattouh, Secretary-General of the Union of Arab Banks, lays out the roadmap for the region’s banking institutions.

CS Event’s Second Banking Revolution Summit, which started in Dubai on Monday, will end on Tuesday and focuses on disruptive technology as assets of 520 banks in the Arab World exceed $4.25 trillion in 2021with deposits reaching $2.65 trillion and loan advances exceeding $2.6 trillion by September 2021, according to Union of Arab Banks.

In 2020, the assets of global financial institutions amounted to more than $468.7 trillion, up from $404.1 trillion in 2019.

Global banking assets value exceeded $180 trillion in 2020, double the global gross domestic product (GDP), reflecting the industry’s growing significance in the global economy.

In 2020, the worldwide volume of mobile money transfer grew 15 per cent to $41 billion with transaction value jumping 22 per cent to $767 billion while the number of registered mobile money accounts grew 13 per cent to 1.2 billion.

However, more than 50 percent population in the Middle East and Africa remains unbanked;

In the Middle East, the number of mobile money accounts reached 146 million with transaction value growing 26 per cent to $10.5 billion. The number of registered mobile money accounts grew 9 per cent to 56 million.

Khaleej Times spoke with Wissam H Fattouh, Secretary-General of the Union of Arab Banks (UAB).

Edited excerpts from the interview:

What are the challenges before the banking and financial institutions in the region?

Arab banks and financial institutions face several challenges nowadays. Among these challenges, I can cite: the impact of Covid-19 on the Arab economies, the cyber-security challenges arising from the increase reliance on technology, and the anti-money laundering and terrorism financing risks. The spread of Omicron variant of Covid-19 worldwide and in the Arab region, has resumed the economic uncertainty, and resulted in revising the economic growth outlook, reflecting a possible deterioration in economic activities, which in turn may pose a challenge for banks operational performance. In parallel, the increase reliance on technology and digitisation in economic activities makes banks and financial institutions in particular subject to more challenges related to cybercrimes and anti-money laundering and terrorism financing operations.

How are MENA financial institutions moving forward in an attempt to align with international best practises?

To preserve and develop their relations with the international financial systems and with the international correspondent banks, the Arab banks adopt the strictest measures and best practice recommendations related to combating financial crimes and compliance. The banks in our region adhere strictly to the international banking rules and regulations, and in this regard, a continuous development of governance frameworks, compliance procedures, and information technology (IT) infrastructures is implemented. The Arab banks consider following the international best practises in operations, governance, compliance, risk management, and combating financial crimes, as a strategic objective.

Explain how Arab economic security tops your agenda?

One of the main challenges to the Arab financial systems, and the broader economies, is cyber security risk. With the increasing trend in digital transformation, and with more reliance on technology, especially in the financial and banking system, the Arab economies – similarly to all other economies – are becoming subject to more potential cyber-attacks. This problem represents in fact a global concern even for the largest and most developed economies. Hence, cyber security represents a top priority for the Union of Arab Banks, and in this regard, it has already organised many regional conferences to shed light on this challenge and spread the awareness on its repercussions, in addition to issuing many studies and publications and held many training workshops on how to deal with this risk and how to integrate it with the comprehensive risk management framework.

Why do you feel the International Chamber of Commerce (ICC) is an ideal forum to settle banking disputes?

The International Chamber of Commerce (ICC) is the world's biggest and most representative business organisation in the world, and a respected institution as the benchmark for international dispute resolution. For this, The Mediation and Arbitration Center of the Union of Arab Banks has joined the forces with the ICC by signing a memorandum of understanding (MoU) that aims to promote the culture of arbitration and alternative dispute resolution (ADR) across Arab banks and financial institutions.

How are Arab banks preparing for the digital transformation?

The Covid-19 pandemic was an accelerator of digital transformation in Arab banks and the pandemic may eventually turn into an endemic. Today, we are also hearing of the Next Wave of Digital Transformation in Banking and Financial Services in the Middle East and North Africa (MENA) region with a shift in focus to a more digital-centric approach. Digital transformation is likely to intensify further. To embrace the next wave of digital transformation in Arab banks, we at the Union of Arab are supporting Arab banks throughout their digital transformation journey by organising world class events and we lately issued a Book on BIG ISSUES IN DIGITAL TRANSFORMATION WHAT UP NEXT FOR BANKS AND SMES IN 2022. UAB is also promoting and supporting the development of a Global Digital Economy platform that can cope with rising Arab banks needs in the pandemic age and beyond.

Which countries in the region are leading the race?

The Arab region is heterogeneous in digital development and at least three clusters can be identified: (1) Gulf Cooperation Council (GCC) countries, (2) Jordan, Tunisia, Lebanon, Morocco, Egypt, and Algeria, (3) other countries, including least developed countries (LDCs) and crisis-ridden nations. Along these lines, the region remains one of the most polarised in terms of digital transformation at an individual country basis, as there exists a huge dichotomy between GCC countries and the rest of the Arab world. At one end, there are the six GCC countries pioneering at very advanced levels in information and communication technology (ICT) indicators similar to those of developed countries; at the other extreme, there are the LDCs, lagging and struggling with digital development due to “persistent structural impediments, including underlying economic variables, socio-economic structure, and ongoing conflicts” in addition to level of urbanisation and access to resources.

Will innovation, use of artificial technology (AI) lead to more job losses in the banking sector?

The impact of innovation and AI on job losses was acknowledged worldwide, and ascertained by world labour statistics. And UAB is playing a big role to raise awareness and trace a roadmap for Arab banks to address the impact of innovation and AI on job losses.AI has cut positions, broken the bottleneck of human efficiency, reduced standardised and repetitive work, changed the nature of work, and enhanced work efficiency. At the same time, it has also created new jobs and will change the business world in three aspects: automation, intelligence and creation. Moreover, with serious pressure on banks to innovate, there will undoubtedly be job loss. The fear of fintech companies taking banking jobs is rising. UAB is addressing all issues related to AI and innovation throughout our events as well as in our publications. We’re working with Arab regulation bodies to shape innovation and AI in the right direction to prevent cyberthreat and fraud.

joydeep@khaleejtimes.com