Dubai: In the face of strong economic headwinds across the Middle East and some of the African markets, Standard Chartered’s retail banking business has remained resilient and some of these markets are set to deliver good results this year, Jaydeep Gupta, Regional Head, Retail Banking, Africa and Middle East said in a recent interview.
“Our priority for the region is to protect and grow Retail Banking in core markets, supported by the rollout of digital capability for our clients. In 2015, The Bank announced it will invest $1.5bn in technology over three years across our footprint. There has seen significant investments in technology in the Africa and Middle East region that makes banking secure, simple and personal for our clients.
“For Africa and Middle East, though 2016 was a tough year, the region overall, retail in particular has delivered really resilient performance. We did face challenging operating conditions. Despite that we continued to do reasonably well,” said Gupta.
Challenges came in various forms. For example, Pakistan had a 450 basis point rate cut over a period between end 2014 and 2015. When a bank has a deposit heavy balance sheet, such sharp rate cuts have implications for net interest margins.
In Nigeria, in month of June, its currency (the naira) was devalued by 40 per cent. It went down from 199 a dollar to 280 a dollar. There are strict forex controls in place imposed by Central Bank of Nigeria. “In retail business, settlements involving foreign currencies are very difficult when there are strict forex controls. Nigeria is likely to remain a fairly challenged economy for the better part of this year, like last year,” said Gupta.
Kenya introduced a rate cap in last September last year, which capped the lending rate and raised the deposit rates, squeezing the margins substantially. The impact of this has been huge on retail banking business.
The bottom-line is that the banks faced massive margin compression and that happened over night. This change happened on the book, which means whatever assets and liabilities sitting on the balance sheets had to be re-priced from the date the government decided to implement new rates. The impact was massive. For some banks it may have been in the range of $30 to $40 million revenue wiped trimmed out from their books.
“We faced different kinds of challenges in different markets across the Africa and Middle East. The impact of slowing economy, job losses and the slowing credit growth has been very real and significant. Despite these, from an operating point of view we have been doing well,” said Gupta. The bank has been quick to take actions to reshape its business to meet with these challenges. “In the case of the UAE and some other markets we moved very fast and made the changes and we were very clear in our policy that we will not touch our frontline which generates business and support business as a client interface remained unchanged,” said Gupta.
The bank opted to rationalise its processes by end-to-end digitisation which brought about significant efficiencies and cost savings. Last year in Africa the bank rolled out SC Mobile, a mobile application simultaneously in eight markets and two in the Middle East, in Pakistan and the UAE. The Bank also announced the introduction of video banking which allows clients to speak with banking consultants over a secure video connection from a location of their choice – all they need is a laptop. This new sales and service channel allows clients to do almost anything they can do in a branch, from signing up for a new card to finding a mortgage to suit their need.
For the front end, the bank introduced ‘retail workbench’ that lets clients open an account in any location and makes banking services like loan approvals and credit card issuance fast, simple and completely paperless Using this tool, onboarding of new customers is now done online. “From a process point of view we get everything in digital format and a major share of the underwriting is also done through automated processes. A large part of the efficiencies come from the back office. The automated processes streamline errors and discrepancies, bringing down the front-end error rates. Clearly, it takes out a lot of our costs,” said Gupta.
