Responding to new market demands, banks in Qatar are acting quickly and transforming into a digitally enabled version of themselves. In an exclusive interview with Qatar Tribune, Financial Services Partner PwC Middle East Ahmed Al Kiswani talks about the various aspects of banking digitalisation aimed at enhancing profitability, scaling up operations and improving customer experience. Excerpts:

From rapidly accelerating digitalisation to rising cyber threats, banks face risk and uncertainty on many fronts. How will these and other prominent trends redefine banking? How will the industry meet the challenges ahead?

With the rise of rapidly accelerating digitisation, it is undeniable that banks need to also transform their businesses by adopting technology within their systems. Within the banking industry specifically, rapid technological advancements require banks to focus on efficiency, transparency, and experience. According to our latest CEO survey, Middle East senior executives foresee technology as a prominent feature in their plans, with 66 percent expecting to deploy cloud technology, artificial intelligence, and other advanced technologies in their operations in 2023.

We identified five key trends that will shape the future of banking in our inaugural FS Horizons Leadership Meet this year, which include being digital first, having high levels of agility, embarrassing AI and open data, nurturing their ecosystem partners and developing their talent pool.

With that, we are seeing today that banks are reviewing their strategies to shift from a long-term direction towards tactical initiatives which can keep them agile and more resilient during highly uncertain periods. This will include a significant review of the bank’s risk strategy and accordingly the risk appetite. Today, we are seeing in ‘cash-intensive’ sectors that there is a need for better systems. For example, there are currently tests taking place around new systems where the QR code can be printed on the invoice, and the customer can scan it and pay after receiving the order.

What trends do banking leaders consider to be the greatest risks and the greatest opportunities?

Although digital payments are seen to become the norm in Qatar, emerging technology risk is considered to be high. This includes the fast trends in the digital banking environment and to what extent the bank will be able to adapt and absorb, cybersecurity and data protection is other critical risk. This is in addition to emerging risks related to high competition from Fintech companies and the telecom sector.

What internal and external barriers stand in their way?

Key barriers can be summarised in three main aspects: Talent acquisition and skills requirements, rules and regulations which might not have evolved at the same speed as business emerging trends and cultural change towards digital banking and adopting the right bottom-up approach.

What technologies will help them harness the opportunities ahead?

Without any doubt, the future is digital, and a must-win for those looking for success and digital must be woven in the organisation’s DNA. Forgetting legacy is also crucial – many banks aim to become technology organisations but are often slowed down by their DNAs. This is a key topic that we discuss thoroughly on our Financial Services Horizons website.

Artificial Intelligence (AI) will be playing a major role in the future banking environment, generative AI solutions and other AI capabilities will appear more in the bank’s products and services. It will be a new ERA in customers’ journey.

How is AI beneficial to credit risk management in digital banking?

Banks should focus on enhancing risk predictions by utilising AI in developing early warning signals covering macro and micro-credit risk aspects. AI is changing the way we do banking and can provide a more effective analysis of the quality of credit portfolio, and the potential NPL ratios and help the banks in developing better risk remediation plans. If implemented at an economic scale, it can lead to more efficient banking services for customers.

How important is data governance for risk management?

Proper data governance can help banks in gathering the right data at the right time with an acceptable level of quality. Data cleansing and data normalisation are key challenges facing banks while trying to use data in risk analysis and risk reporting. The data governance framework is very important to identify data classification, data ownership and quality maintenance.

How can banks maintain the quality of assets liability management (ALM) after the recent crises we saw in US banks?

A full ALM framework focuses on long-term stability and profitability by maintaining liquidity requirements, managing credit quality, and ensuring enough operating capital. Unlike other risk management practices, ALM is a coordinated process that uses frameworks to oversee an organisation’s entire balance sheet, it ensures that assets are invested most optimally, and liabilities are mitigated over the long term. Traditionally, financial institutions manage risks separately based on the type of risk involved. Yet, with the evolution of the financial landscape, it is now seen as an outdated approach. ALM practices focus on asset management and risk mitigation on a macro level, addressing areas such as market, liquidity, and credit risks. Unlike traditional risk management practices, ALM is an ongoing process that continuously monitors risks to ensure that an organisation is within its risk tolerance and adhering to regulatory frameworks.