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Challenges include talent, political risks and service.

Forecasts state that retail banking will drive growth in the industry by 10 percent over a five-year period. However, low levels of customer service, a lack of talented staff and political risks are some of the challenging situations facing the industry.

NBAD’s (National Bank of Abu Dhabi) general manager of consumer banking, Suvo Sarkar, stated that the financial crisis has altered dynamics in the banking sector. Sakar noted that retail banking is booming. There is more sustainability in it and the predictable nature of the industry means less volatility as well. Retail banking has become the bank’s backbone.

It is estimated that UAE banks have earned between 30 and 40 percent of revenues from the retail sector. This type of banking currently has more promise than corporate banking, mainly due to the inclusion of small and medium-sized businesses. This sector also presents less risk than corporate lending and the youthful population of the area is creating a booming demand for banking products, according to the experts.

At Ernst and Young, the leader of regional retail banking Salmaan Jaffery noted that around 18 months ago the banks looked hard at the composition of their business. Many didn’t have a hand in retail but are now expanding into the sector due to the down market. Banks need more than one horse in the ring; it is imperative for the regional industry. Of the 400 million residents of Mena, more than half of them are younger than 40 or 45. This segment of the population will be using financial services for the next two, three and four decades. The earnings in retail banking, if done properly, will likely be more stable.

Over the short termimumultuous political climates in the Middle East will dampen the growth seen in the retail banking sector, according to bankers.

Political instability is not a good situation for anyone. Businesses are impacted, which will reduce the amount of new loans and the amount of marketing due to the fact that public life is disrupted. Egypt was a good example, as the big banks were forced to scramble in a bid to protect the Egyptian people. Even though there is an impact, over the long term the demographics will not change, according to Jaffery.

Over the coming three-year to five-year period bankers say retail banking will deliver benefits and positively affect the revolutionary climate as the Arab world calls for more economic justice.

Opportunities are presenting themselves more often than risk. In retail banking particularly there will be a much stronger middle class from the region’s nations, one that is more empowered. This will positively affect the standard of living and result in higher uptakes of the banking products, cards, wealth management services and accounts. Each of these retail management areas will see the benefits, according to Sarkar.

The nations that are experiencing change, whether it is people power or something else, will positively affect retail banking. Short-term risks are present, but over the mid and long term the outlook is positive.

Sarkar mentioned that the “flight to stability” is seen as a positive effect of political changes within the banking sector, moving capital to more secure areas in the UAE and drawing in expats and their families from the nations experiencing turmoil.

The turmoil seen in the region has also resulted in higher government spending and more job creation. These conditions provide an opportunity for the retail banking sector, as opposed to a threat, according to Fahad Al Semari. Al Semari is the retail banking general manager at Saudi Arabia’s Alinma Bank.

The regulators of both the economy and the political crises are pressuring the retail banking sector and presenting a less positive picture of the short-term outlook when compared to the long-term prospects. The regulators claim that rising capital costs and lower levels of liquidity darken the outlook.

The consumer banking head of Samba Financial Group, Ajay Makhija, noted that it is necessary for this industry to avoid tripping over itself.

The retirement and savings markets, as well as home ownership, will continue to generate profits in retail banking, although reducing the transaction costs is still a challenge, according to Jaffery.

Sarkar noted that the banking sector is entering a new era where the banks need to be sharper about cost and risk management, as well as customer management, in order to bring in revenues at the same level as the past.