Emirates NBD, the largest lender in Dubai, is setting up a digital banking service targeted at millennials as it seeks to bolster its retail business in the face of falling margins.
Banks in the United Arab Emirates have faced headwinds as more tepid economic conditions caused by lower oil prices compress loan growth and raise the tide of defaults.
Emirates NBD expects its retail loan growth this year to be between 5-7 per cent, Suvo Sarkar, senior executive vice president and group head of retail banking and wealth management, told reporters on Thursday.
The bank recorded retail lending growth of 14 per cent last year.
With the digital bank, Liv., Emirates NBD will target the United Arab Emirates’ 2.4 million millennials, the term for those who reached adulthood during the turn of the 21st century. It will allow users to make and track payments and benefit from dining and other lifestyle deals, it said.
“The revenue from millennials is quite substantial,” said Sarkar. “We have currently a market share of around 21 per cent of the millennial population and we want take that up to 35 per cent over the next three to five years.”
The bank also hopes to roll Liv. out over the next year or so to Saudi Arabia and Egypt, where it has a banking presence.
While users of Liv. do not have to be customers of Emirates NBD, the bank hopes to encourage many of the non-customers to join the bank.
ENBD’s net interest margins declined to 2.29 percent during the fourth quarter from 2.82 percent a year earlier as the bank said loan spreads did not keep pace with the higher cost of deposits, coupled with lower yields from investments.
Profitability for Gulf banks has been eroded by steeper funding costs as competition for deposits intensifies because lower oil prices have squeezed liquidity in the banking sector.
“We are seeing margin compression, a bit of stress on liquidity but given our brand strength, given our distribution network and given our digitalisation we are still seeing a huge amount of growth in both our current and savings accounts as well as out payment products,” Sarkar said. “In both liabilities and assets we are seeing healthy growth.”