Emirates Institute for Banking and Financial Studies Hosts Interactive Workshop on Retirement Planning

Emirates Institute for Banking and Financial Studies (EIBFS), a regional leader in banking and finance education and training, hosted an engaging workshop last week, dedicated to retirement planning and pensions. Drawing an audience of more than 60 members from leading banks in the UAE, at the institute’s campus in Dubai, the event discussed the significance of retirement planning, and offered advice on how to benefit from funds in the private sector, from the ‘General Pension and Social Security Authority’.

Experts Mohammed Saqer, Head of Customer Happiness Department, and Khalifa Alfalasi, Acting Director of Dubai Operation Center, from the General Pension and Social Security Authority department were on hand, to provide advice and answer various questions from industry participants. The attendees at the event comprised of UAE National employees, Human Resource Officers and several others nominated by leading financial institutions and banks within the region.

Speaking about the event, Jamal Al Jassmi, General Manager of EIBFS, said: “At EIBFS, we strive to offer a broad platform that tackles important subjects and critical issues in the area of banking and finance, for the benefit of our stakeholders. We are pleased to collaborate to with the General Pension and Social Security Authority, as part of our continued dialogue with our valued industry partners. Retirement planning and pensions is one of the most significant topics today, especially for UAE Nationals. We strongly believe that all participants benefited from the informative and highly interactive session.”

During the two hour session, each attendee was presented with the benefits of saving early; such as securing wealth for future emergencies, investing for the next generation, and guaranteeing a similar lifestyle after retirement. Participants were also offered advice on effectively managing optimal investments of financial resources. Other topics also covered during the session, included the definition of insurance benefits contained in the law, the services provided by the law for employers, insured and pensioners, as well as, the definition of insurance benefits and pension entitlement. The highly interactive session closed after several questions were fielded from the audience.

Aligned with the UAE government’s objective to boost the professional capacities of Emirati citizens, EIBFS recently announced that it received 5,366 UAE national participants for the 8 months ended August 30, 2016.

‘Big Bang’ regulatory changes for banks in the offing

Pijush Kanti Das

Two new ‘big-bang’ global changes are coming to the UAE in 2018. First, is the implementation of Basel III regulatory norms, which will drastically alter the way banks do business. But, a second and a more momentous change is in the offing from January 2018 – the IFRS 9 accounting standard.

The International Accounting Standards Board (IASB) issued the final version of IFRS 9-Financial Instruments which is all set to replace the older IAS 39. In the UAE, IFRS Standards are required both by the UAE Commercial Companies Law No 2 of 2015 and by the listing rules of Nasdaq Dubai, Dubai Financial Services Authority, Dubai Financial Market PJSC, and the Abu Dhabi Securities Exchange.

The new accounting standards will have far-reaching consequences for the entire banking sector, and has forced several banks to prepare for expected credit loss requirements whilst acting to comply to all of its requirements.

The current system, IAS 39, which will be replaced by IFRS9, is a critical accounting standard, prescribing rules for recognising and measuring financial assets, financial liabilities, derivatives and some other non-financial contracts.

After the 2007-08 crisis, which heavily impacted the world, global leaders signalled a need for a move into a more forward looking accounting standard that would enable banks to identify credit losses in advance. That need became more urgent – and thus the IASB decided to replace IAS 39 in its entirety. The new accounting standard, IFRS9, essentially is a move by regulators to avoid repetition of events in the last financial crisis. It will mean that the management of banks can now make more informed judgements than was allowed earlier.

The major change that IFRS9 brings to the table is in the impairment of assets. IFRS 9 adopts a single forward-looking expected credit loss (ECL) model that is applicable to all types of financial instruments subject to impairment accounting.

In essence, the new regulation will strongly affect the way in which credit losses are recognised in the balance sheet and profit and loss statement. Under the new regulation, banks are required to move from recognising losses immediately, from an ‘incurred loss’ basis (i.e. when a loss actually happens at a future date) to an ‘expected loss’ basis (i.e. the measured probability of a loss taking place in future on existing loans).

For example, currently if a bank gives a loan to a customer, there are several ways this can turn into a non-performing loan – i.e. the customer could lose his job, or have a serious ailment. This meant that banks would have to immediately react and provide for the loan loss. It also meant that no credit loss was being recognised until the actual credit event took place. However, with the new IFRS9 model, banks will have to anticipate and provide for such losses far in advance.

As a result, banks will have immediately higher loan loss provisions once the new standard comes into effect. This is thus expected to impact banks’ profits, and in turn capital adequacy ratios, as banks may need additional capital to provide a finance, and will have to factor this into their decision making.

IFRS9 will have also have a significant impact on the future behaviour and the business direction of banks. For instance, banks may avoid more risky loans and increase pricing to customers. The regulation will also impact other financial institutions, such as the insurance sector, which will affect how they classify their assets and investments.

Overall however, this is a good move by regulators for market stability and transparency. It is a change that is forward looking as opposed to reactive, as in the past, banks have been accused of doing too little, too late, as far as recognizing bad assets and providing for them. In contrast, this model is likely to be extremely versatile and will recognise under-performing assets quickly, which was impossible under IAS 39.

Initially, there is a risk that the size and impact of ECL estimates can lead to material misstatements in bank financial statements. Under IFRS 9 there will be important disclosure requirements that will need to be adhered to. Luckily, Banks do have experience with ECL – for regulatory reporting and computation of capital adequacy – but there are some differences. Banks are also actively working with auditors and adapting technology and systems, to ensure they can identify forward-looking losses in accordance to this model.

With this significant regulation set to alter the financial for the better, education on the impact and compliance to these regulations will be especially important for banks. At the Emirates Institute for Banking and Financial Studies (EIBFS), we already hosted an interactive workshop earlier this year, on Basel III and the regional implementation of IFRS9. Going forward, there is no doubt that we will continue to include this system into our new curriculums for our students and trainees.

The writer is senior trainer at Emirates Institute for Banking and Financial Studies.

Paradigm shift in Emiratisation in banking and insurance sectors

Noura Abbas Ahmed

Throughout the past few decades, the banking and insurance sectors have played a pivotal role in the United Arab Emirates’ economy. The steady growth of both these sectors has been instrumental in the major transformation of the financial landscape in the UAE.

In addition to their business commitments, they have played an exemplary role in supporting the government’s Emiratisation initiatives. This includes the quota system currently in place which mandates that these institutions should employ an allocated percentage of Emiratis in their workforce.

The current quota system, especially in the banking sector, has been largely successful in attracting Emirati talent to the industry. The numbers are a clear testimony to this fact. Various studies have shown that the preference among Emiratis to work in the public sector leaves the private sector with a low talent pool, which is just around 10 per cent of the Emirati workforce.

Despite the odds, it is heartening to note that banks and insurance companies account for more than 50 per cent of the Emiratis working in the private sector. That said, we have noticed that the growth of UAE nationals has plateaued, and in addition, various stakeholders have expressed concerns that the current quota system emphasises predominantly on quantity — rather than the quality — of the jobs created. The ‘one size fits all approach’ in the form of a fixed percentage is also affecting the competitiveness of these industries.

It is due to these concerns that the banking and insurance sectors are set for a major change — with the implementation of a new strategy identified as the ‘point based system’. Having been approved by the UAE Cabinet, this truly transformational strategy emphasises on achieving employment generation and talent development. It is our belief that the new system will enable quality job creation, benefiting all stakeholders, in addition to ensuring that industry competitiveness remains unhindered.

At the Emirates Institute for Banking and Financial Studies (EIBFS), we have worked closely with the Ministry of Presidential Affairs, the UAE Central Bank, and the Insurance Authority, to guarantee a swift launch of the new system in January 2017. We have been overwhelmed by the proactive involvement of top management from both banks and insurance companies for the initiative.

In fact, throughout the past six months we have conducted a series of training sessions for the majority of local banks and insurance companies informing them of the new points system before its implementation. The new system has been greatly appreciated by them, and the regulators have taken many suggestion on board while fine-tuning the final guidelines.

Following its launch, all banks and insurance companies operating in the UAE will be allocated their Emiratisation target points by the Central Bank and Insurance Authority respectively. The system offers a distinct feature, where target points for banks are based upon operating income, and insurance companies’ target points will be based on gross written premiums. This ensures a high level of fairness, as smaller banks would have lower targets and larger banks would have to achieve higher targets — a remarkable shift from the current model.

After they receive individual targets from their respective regulators, banks and insurance companies will have two major tools to help achieve their targets. These are referred to as the ‘input’ and ‘output’ points under the point system.

The ‘input point’ tool rewards the training and development effort made by these institutions in developing the skill set of their Emirati workforce. This is measured using a quantitative methodology based on the investment made in training their Emirati employees. This is a paradigm shift from the quota system, as the banks and insurance companies receive their due reward for their effort, and get further incentivised for developing the skill sets of their Emirati employees.

The ‘output point’ tool, measures the rewards based on actual job creation and the quality of jobs being created. The banks and insurance companies can score high points under this parameter if they have Emiratis working in senior and mid-level positions rather than the non-managerial roles. For instance, an Emirati in a senior management role fetches five points to the institution, while an Emirati in a non-managerial role fetches just one point. Through this method, institutions are further encouraged to develop the skill sets of Emirati employees so that they can move up to higher level roles.

Additionally, another key highlight of the system is that institutions will attain double rewards in the form of points — for every Emirati employee who occupies a “critical position”. Critical positions are roles specified by the Central Bank and Insurance Authority which range from entry-level positions to higher roles in select departments.

Today, a large majority of Emirati employees work in entry-level positions in retail banking roles, with no scope for advancement. By implementing this mechanism, Emiratis can progress beyond entry-level positions.

In closing, the new point-based system should prove to be a significant motivator for Emiratis in the financial sector to excel in their line of work and attain higher level positions — thus contributing to the nationalisation efforts and human capital goals initiated by the Government.

The writer is Director of the Training Department at Emirates Institute for Banking and Financial Studies.