UAE set to have more banks: report

The UAE is expected to attract more foreign banks in the near future after it joined the World Trade Organization (WTO) which stipulates the opening up of the country’s financial sector, according to a semi official study.

Given the already strong demand for their services, Islamic banks are projected to record further growth with the expansion of the UAE’s banking sector, said the study by the government-controlled Emirates Industrial Bank (EIB).

EIB noted that the Central Bank has not issued licences for new major banking units for a long time but added such a policy would change in the near future in line with WTO rules calling for liberalisation of most sectors in member states.

“Licenses for new banks have not been issued for sometime… however, banking activity will continue to expand with more branches,” it said.

“With the WTO agreements, the economy may open up for new banks in the following years which may raise the already stiff competition.
Evidently, a strong demand exists for Islamic banking. The share of Islamic banks as well as Sharia compliant products can be expected to increase in the coming years.”

EIB said Islamic banking in the UAE had sharply grown over the past years because of strong demand for their services and the fact that many local conventional banks had opened Sharia-complaint financial units.

“A major part of the spurt has come from conventional banks which have recently stepped up their offers for such banking and financial services. Islamic banking is reported to have done very well in commercial and investment banking, but has not made major inroads in retail banking,” the study said.

“However, new retail products are being introduced ranging from remittances to foreign exchange to Islamic insurance….as for the country’s banking sector in general, the outlook remains very positive….the sector grew even during the crisis year 2009 as evident in transactions, deposits and credits. Consumer confidence remains high as indicated by the ATM and debit/credit card figures.”

At the end of the first half of 2010, the UAE had 23 national banks and 28 foreign units, with total branches standing at nearly 811. Most of the branches are concentrated in Abu Dhabi and Dubai, the largest two emirates.

Given its population of around five million, the UAE has been classified as an overbanked country, with a branch for every 6,200 people.

Analysts believe the country has the capacity to absorb more banks given its high per capita income and massive economy, the second largest in the Arab world after that of Saudi Arabia.

In 2009, the UAE’s nominal gross domestic product stood at around Dh920 billion and per capita income was estimated at nearly Dh185,000, the second highest in the region after Qatar.

The UAE already has the largest banking sector in the Arab world in terms of assets, which peaked at about Dh1,554 billion at the end of August.

The Central Bank, which supervises the UAE’s financial sector and monetary policy, froze licences to new banks for many years in the wake of the banking crisis that was caused by a sharp downturn in the economy in mid 1980s because of the oil prices collapse that ended years of economic boom.

The crisis was spawned by failure of many companies hit by the downturn to pay back debt, prompting many banks in the UAE and other Gulf oil producers to chop off their resources for loan loss provisions.

Some banks were forced to merge to avoid collapse and one of the biggest merger operations involving three banks gave birth to what is known now as the Abu Dhabi Commercial Bank.

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