A CFO's outlook: How can banks navigate economic shifts to maintain positive returns?

Arabian Business

26-03-2025

The current global economic landscape looks to present a complex array of opportunities and challenges for Chief Financial Officers (CFOs) in the banking sector. Although anticipation around interest rate reductions is tempered by high inflation expectations, quoting JP Morgan Chase's CEO, Jamie Dimon at 2025 SIEPR Economic Summit on the US & Global economic outlook: 'It's all inflationary', there continues to be a steadfast focus on maintaining the level of positive returns we have seen in the past couple of years.
Given the total 1% rate cut in 2024, banks have rising concerns about lower net interest margins, are increasing investing in technology, all while adapting to a rapidly evolving regulatory environment. All these factors have a negative impact on bottom-line results (especially in the shorter term), making cost control and implementing scalable processes a high priority. On the other hand, risk costs are still relatively low; the GCC region sees healthy growth and an abundance of opportunities.
Against this backdrop, the question emerges: how can we continue to drive efficiency and profitable growth at the same time? As always, we, as banking CFOs, must be agile, look ahead and reinvent ourselves. This means, for example, increasingly prioritising artificial intelligence (AI) and automation over conventional cost strategies. In parallel, we must focus on diversification strategies so as to ensure that our banks have various revenue streams to grow profitability now, and in the future, while continuing to meet ever-evolving consumer needs.
Balancing cost control and growth
As CFOs, we are tasked with the dual mandate of controlling costs and fostering growth even during economic volatility. Encouragingly, as per Grant Thornton's CFO survey, a significant 79% of CFOs express confidence in driving profit growth in 2025. This optimism is rooted in strategic initiatives aimed at balancing short-term financial stability with long-term growth prospects.
As per FTI Consulting's CFO Report 2025, cost optimisation has emerged as the top strategic initiative, and CFOs must scrutinise every aspect of their organisation to identify inefficiencies and reduce unnecessary expenditures, while also exploring new growth avenues.
CFOs must play a pivotal role in fostering a culture of financial discipline across their organisations. By encouraging departments to align their budgets with overarching corporate goals, CFOs must be careful that cost-cutting measures do not compromise operational effectiveness or hinder strategic objectives.
By adopting a forward-looking approach, banks can remain competitive while navigating economic uncertainties.
Increased adoption of technology as a driver of growth
In this era of rapid change, technology emerges more than ever as a powerful ally for CFOs. Investments in IT and digital transformation have accelerated, with AI and automation at the forefront of these initiatives. These technologies offer the potential to streamline operations, enhance decision-making, and reduce costs.
AI-driven analytics can provide real-time insights into financial performance, enabling CFOs to make data-informed decisions with greater precision. Automation, reduces the burden of repetitive tasks, allowing for a greater focus on strategic priorities. By adopting these technologies wherever possible across operations, banks not only improve efficiency but also foster innovation.
Technology will also continue to be a driver of diversification in 2025. Advanced financial innovations such as open banking and embedded finance will, apart from creating healthy competition, enable banks to keep up with evolving consumer demand; partnerships with fintech companies and other third-party providers will continue to open up the financial industry, expanding newer revenue streams as banks and providers work together to meet changing customer needs. At Mashreq, for example we recently partially sold a significant stake in our payment company NEO PAY to a consortium including Turkish Fintech, DGPays. One of the reasons for this transaction is that partnering with DGPays can unlock additional value for NEO PAY, especially in the open banking environment.
As the adoption of technology becomes increasingly integral to financial management, CFOs must position themselves, alongside their bank's Head of Tech, as champions of digital transformation within their organisations, and collaborate to align on strategy and execution.
Adapting to economic shifts
The past years of elevated interest rates have left a lasting imprint on corporate debt servicing. Unless companies are cash-rich and can redeem their debt, they are bound to grapple with the increased borrowing costs, a trend that is expected to persist even as interest rates begin to ease. Businesses that relied on low-cost borrowing (for example heavy leveraged Tech companies) during the era of ultra-low interest rates, now face the challenge of recalibrating their financial strategies. According to a global forecast by Moody's, loan default rates should drop globally below 3% by October 2025, but even at this lower level, the strain on some businesses navigating these financial headwinds of increased costs of borrowing will persist, with the resulting impact felt by the banking industry at some point in time.
The environment predicted for 2025 will necessitate innovative approaches from CFOs. Effective debt restructuring, renegotiation of loan terms, and robust risk management strategies are essential tools to mitigate the impact of defaults. Additionally, CFOs must focus on maintaining healthy cash reserves and exploring alternative financing options to bolster their organisations against potential liquidity crises.
The coming months: Technology, innovation and embracing change
In navigating the complexities of 2025, CFOs must strike a delicate balance between cost control, maintaining positive returns and ensuring strategic investments. Agility and foresight are indispensable traits as economic conditions continue to evolve. Technology, particularly AI and automation, will play an instrumental role in enabling organisations to adapt, compete, and grow. Again, quoting Jamie Dimon, who is very bullish on AI: 'Every time I go to a business review at any level, I ask, what are you doing in AI?', it is like hearing an echo of our Mashreq CEO, Ahmed Abdelaal. With the UAE's aim of being the top global leader in AI, I feel uniquely positioned being a CFO [of a leading bank] in the UAE, to capitalize on the momentum.
The path forward demands a commitment to innovation and a willingness to embrace change. By leveraging advanced technologies, optimising costs, and maintaining a strategic focus on growth, CFOs can lead their organisations through uncertainty and toward a future of sustained success. The evolving economic landscape may pose challenges, but it also presents opportunities for those prepared to seize them.
With the right strategies, CFOs can turn these challenges into catalysts for long-term resilience and prosperity.