student roll no | 4th Jan 2016

1. INTRODUCTION

The UAE (United Arab Emirates) is a coalition of seven small American Gulf emirates: Abu

Dhabi, Dubai, Sharjah, Ajman, Umm Al Qaiwain, Ras Al Khaimah and Fujairah. UAE is a

member of the Gulf Cooperation Council (GCC), and the Major portion of the economy of the

country is traditionally through oil and gas export. Being a country with oil reserves each of the

emirates has a quite stable economic and political system. The country has a desire to appear as a

financial and service sector leader in the Middle East in near future. UAE has proven crude oil

reserves of around 98 billion barrels that is approximately 10% of the worlds reserves so this

makes UAE the seventh largest oil provider in the world. The oil wealth is concentrated in Abu

Dhabi, which approximately contributes up to 90% of the total oil production of the country.

UAE also has a substantial reserves of natural gas accounting for 4% of the worlds reserves

which makes it a country with seventeen largest gas reserves. The bulk of gas reserves are over

90% and again these reserves are located in Abu Dhabi as well. On the other hand, the emirate of

Dubai has become an important financial center in UAE because it has the most significant

financial and services industries of UAE. Recently both Abu Dhabi and Dubai have emerged as

the two most important emirates of the UAE. After Saudi Arabia UAE has the second largest

economy in the GCC, with a GDP of approx. 440 Billion USD. Since independence in 1971,

UAE's economy has grown by nearly 231 times approximately. The non-oil trade has grown to

1.5 trillion AED, a growth by around 30 times from 1981 to 2015. UAE is ranked as the 30th

best nation in the world for doing business based on its economy and regulatory environment,

ranked by the Doing Business 2016 Report published by the World Bank Group.
 2. UAE BANKING SECTOR

The banking sector of UAE contains 23 local and 26 foreign banks, with 957 branches between

them, the banking sector of UAE is in quite good benefit for being in a good and vigorous

position. The banking sector is being regulated by the UAE Central Bank, Government and

public sector that are in a position to handle financial strength to increase revenues and

implement wise policies and strategies, as a result the sector is in a position that investors,

market participants, and analysts are generally comfortable with this financial market. However,

with the paradigm shift in oil prices that have been witnessed recently, the sectors significant

strength has been slightly broken. The key indicators such as loans, deposits, NPLs (non-

performing loans), etc everything is contentedly going in a right position that is why the people

who are linked to the banking sector of UAE still have a comfort to remain in the relation to

UAE banking sector. However, still there are some challenges that UAE banking sector faces

every day which is required to be highlighted so that they may have a closer examination and

closer monitoring over the future. For example, Government and Public sector deposits, Central

Bank FX reserves, loan to deposit ratios (LTD), and liquidity in the banking system are among

those factors that are showing a little progress from sometime.

The Banks in Abu Dhabi and Dubai hold more than 90% of the total domestic assets, with this

total being divided almost equally between Abu Dhabi and Dubai banks. Market access for

foreign banks was limited for some time because they were not allowed to open more than eight

branches throughout the modern banking operation from 1980 - 2003. However, later on the laws

were changed, and today banks are allowed to open more than eight branches but special

permission is required. Now UAE has been a well-developed place for foreign banks to sell their
services openly. A list of all domestic and foreign banks operating in the UAE has been added
below.
Domestic Banks in UAE
1. Abu Dhabi Islamic Bank (ADIB)
2. Abu Dhabi Commercial Bank (ADCB)
3. Arab Bank for Invest. & Foreign Trade
4. Bank of Sharjah (BOS)
5. Commercial Bank International (CBI)
6. Commercial Bank of Dubai (CBD)
7. Dubai Bank
8. Dubai Islamic Bank (DIB)
9. Emirates Bank International (EBI)
10. First Gulf Bank (FGB)
11. Invest Bank
12. Mashreq Bank (MASHREQ)
13. Middle East Bank
14. National Bank of AbuDhabi (NBAD)
15. National Bank of Dubai (NBD)
16. National Bank of Fujairah
17. National Bank of Ras Al Khaimah
18. National Bank of Sharjah (NBOS)
REPRESENTATIVE OFFICES OR BRANCHES OF OTHER INTERNATIONAL
BANKS
1. American Express Bank Ltd.
2. Bank Brussels Lambert
3. Bank Muscat (S.A.O.G)
4. Bank of America
5. Bank of Bahrain and Kuwait (B.S.C)
6. Bank of Beirut SAL
7. ICICI Bank Ltd.
8. Citi Group Global Markets
9. Clearstream Banking S.A.
10. Coutts & Co.
11. Credit Suisse
12. Deutsche Bank AG
13. Dresdner Bank A.G.
14. Fidelity Investments International
15. HDFC Bank Ltd.
16. HSBC Bank International Ltd.
17. Indusin Bank Ltd.
Foreign Banks in UAE
1. Al Ahli Bank of Kuwait K.S.C.
2. ABN-Amro Bank N.V.
3. Arab African International Bank
4. Arab Bank plc.
5. Bank of Baroda
6. Bank Saderat Iran
7. Bank Melli Iran
8. Banque Banorabe
9. Barclays Bank Plc.
10. Banque du Caire
11. Credit Agricole Indosuez
12. BLC (France) S.A.
13. BNP Paribas
14. HSBC Bank Middle East
15. Citibank N.A.
16. El-Nilein Bank
17. Habib Bank A.G.Zurich
18. Habib Bank Limited
19. Kotak Mahindra International Ltd.
20. Kuwait Financial Investments (KSC)
21. Man Investment Ltd.
22. Merrill Lynch Bank (Suisse) S.A
23. Natexis Banque Pupulaires
24. Nationwide International Ltd.
25. Philippine National Bank
26. Royal Bank of Canada
27. Societe Generale Bank
28. Standard Bank London Ltd
29. State Street Bank and Trust Company
30. Towry Law (Asia) HK Ltd
31. UBS A.G.
32. Union Bancaire Privee (CBI-TDB)
33. Union de Banques Arabes
34. Unit Trust of India
35. Wachovia Bank National Association
 18. Korea Exchange Bank 36. West LB A.G.

3. THE CENTRAL, CONVENTIONAL AND ISLAMIC BANKING

The strength of the conventional banking sector (excluding Islamic banks) is Federal Law 10,

legislated in 1980, and the Federal Law 6 was publicized in 1985 to legalize the activities of

Islamic banking in UAE. However, Islamic banking is still a small component of the UAE

banking sector. According to Islamic banking laws, banks cannot charge a fixed rate of interest

on deposits or loans, variable interest rates based on a profit / loss sharing model is the

foundation of Islamic banking. The Central Bank of the UAE was established according to the

Federal Law 10; the central bank took over the charge of the Currency Board. The central bank

operating in UAE also has the duties of advising the government on monetary and financial

issues, issuing currency, maintaining gold and foreign currency reserves, and formulating a credit

policy. All regulation and supervisory duties are under the direction of the Central Bank. The

UAE currency is linked with US dollar, so the central bank cant do much in setting monetary

policy and controlling interest rates. But still some monetary and credit controls are exercised

through its sale and purchase of certificates of deposits. The central bank plays an important role

in formulating and monitoring credit policy, it also plays a vital role in supervising the financial

sector as well. All commercial banks working in UAE are controlled and licensed by central

bank, and therefore are subject to the central banks requirements and regulations. The central

bank made it mandatory for all banks to use International Accounting Standards (IAS) In 1998,

and in early 1999, local banks were instructed to establish clear corporate structures. Moreover,

central bank requires banks to maintain a capital to risk weighted assets ratio of at least 10% at
all times. According to the Central Bank all banks must be owned by UAE nationals majorly.

The banks are also required to be registered as Shareholding Company under the UAE

Companies Law and must be registered with the Federal Ministry of Economy and Trade.

4. CHALLENGES TO BANKING SECTOR OF UAE

Every rapidly growing business faces a lot of challenges on a way of success, UAE banking

sector isnt different from other industries as it is understood that UAEs major portion of

revenue is from Oil and Gas reserves but apart from that Dubai and Abu Dhabi are two major

emirates that are sharing a healthy portion of their revenue through non-oil/gas resources like

tourism, telecommunication, banking and financial institutes, aviation etc. At an initial stage the

banking sector of UAE has faced a lot of challenges which were later sorted one by one right

after the Central Bank of UAE was established. However, being one of the niche country

internationally UAE has to face challenges occurred due to changes in the market internationally

or locally. UAE banking sector being a financial sector is always effected due to changes in

political policies, credit policies, monetary policies etc. here we are going to discuss some

challenges that UAE Banking sector is currently facing.

4.1 Biggest banks leaving UAE

First it was the Royal Bank of Scotland, second Lloyds, then Barclays and Standard Chartered

Bank. Foreign banks have been gradually dragging out or limiting their services in the UAE,

leaving open opportunities that have been eagerly shattered up by prominent local banks.

According to most analysts, it has been a matter of pull, not push, factors. Foreign banks are re-

focusing towards their home headquarters and reeling in their offshore operations globally. The

UAE is not the only market they have quit but the competition from highly liquid local banks has
not made life easy for them. The foreign-owned banks have found it difficult to compete with the

large, state-owned banks in UAE. This has been the major driver of foreign-owned banks

decisions to pull out of the retail sector and focus on more profitable corporate and investment

segments, where they can be more competitive with the larger locally-owned banks. The UAE

has a very competitive banking sector, particularly on the retail side, so its difficult for foreign-

owned banks to gain a foothold and have enough market share in the UAE to survive.

4.2 Human Resource Challenges

A rapid growth and development in the financial services sector in the GCC and internationally,

companies are accepting the importance of having a solid human resource strategy and the need

for investing more in HR functions within their organization. The major HR crises banking

sector is facing are skills shortage, high attrition levels and an ever increasing expectation of

manpower supply, both local and foreign. To tackle these challenges from a business perspective

and to underline the importance of HR in financial services sector is one of a major and growing

concern of Banking sector in UAE.

4.3 Customer Service

As ever customer service is always a key challenge for banks in UAE, but a lot of effort has been

taken to address this issue. The UAE's banking industry is not exactly the benchmark for

excellent customer service, It is probably the most complex and most difficult challenge for

bankers, especially here. Here in UAE there are 70 nationalities of bankers dealing with 200

nationalities of customers, so that's a combination of 1400 staff and customers that have to work

well all the time. Bankers need to figure out that a good service to a Chinese customer is not
necessarily a good service to a British customer," he explained. The key is for lenders to work on

consistency of service across multiple channels. Bankers are doing a lot of work in training their

frontline staff to be consistent in terms of what they tell customers, how they appear to customers

and how they behave with them. Many banks in UAE are now using social media as one of the

major tools to interact with customers and resolve problems.

4.4 COLD-CALLING

All of the Banks in UAE are also increasingly facing criticism from customers because of the

practice of cold-calling circles. With the economy rebounding and confidence returning to the

market, calls from banks offering everything from credit cards to personal loans have been on the

rise. Government has urged Bankers to refrain from unnecessarily disturbing customers. By such

practice bankers are hurting their selves as an industry by calling consumers consistently to get

an idea how to position products that customers really want based on the lifestyle and needs.

Banker are not doing it right both ethically and statistically by pitching every product to every

consumer this may only hurt them back in the long run. From a consumer's mindset bankers have

to understand that they shouldn't disturb their customers in the middle of a meeting to inform

them about the latest credit card launched by the Bank. It is important for Bankers to hold

themselves back from the kind of marketing they are doing and I think with more usage of CRM,

banks are becoming more sensitive to which kind of customers to call, Banks can use non-

intrusive ways like emailer, SMSs etc instead of calling the customers every time.

5. ECONOMIC ANALYSIS AND STATISTICS

The Banks in UAE mainly belong to two categories, national or local banks and foreign banks,

with the latter being restricted from operating more than eight branches. Currently, there are 49

banks operating in UAE. There are two national banks in UAE, all of which are listed either on

Abu Dhabi Securities Market (ADSM) or Dubai Financial Market (DFM). Total assets of UAE

banks grew by approx. 15 per cent to Dh 2,405 billion in 2015 compared to Dh 2,276 billion in

2014, enabling the country's banking sector to remain the largest in the Arab world in terms of

assets. Total deposits increased from Dh 1,387.8 billion in 2014 to Dh1,446.5 billion in 2015,

according to a statement of UAE Banks Federation. Among GCC countries, UAE has highest

number of banks after Bahrain. Another notable feature is the rapid stride that Islamic banking

has made in the UAE. A range of Sharia-compliant products have been introduced in the market

and Islamic finance deals like Ijara transactions have become famous in property and car

purchasing deals.

5.1 Banking Assets: Banking sector assets net of provisions and interest in suspense reached

AED 2,391bn (US$ 651bn: 7% y-o-y) at the end of May 2015. Total assets increased 10.8% y-o-

y during the first quarter ending 31 March 2015 and reached AED 400bn (US$ 109bn). UAE

banking sector is comfortably capitalized and has an overall capital adequacy ratio of 18.2% -

significantly higher than the CB requirement of 12%.

5.2 Banking sector deposits: Total deposits for current year reached AED 1,446.5bn (US$

394bn) at the end of May 2015 with y-o-y growth rate of 4.8%. Government deposits decreased

by -5.25% y-o-y in the month of May and constituted 12.6% of total deposits. In April 2015,

public sector deposits declined to AED 173.8bn (-13% y-o-y) and constituted 36.7% of total

deposits down from 49.6% March 2014. The share of government & public sector deposits has

been gradually declining.

5.3 Banking Sector Profitability: The twelve months progressing sum of profits for the listed

banks in the UAE have reached almost US$ 12.5 bn at the end of Q1 2015, a y-o-y growth of

18.4% for Q1. Banking system stability indicators have been improving in recent years. Indeed,

the sector is by far the most profitable sector of the economy.

5.4 Market Share: 2015 first quarter balance sheet data from the UAE central bank shows that

NBAD has 17% market share on banking sector assets. National Bank of Abu Dhabi (NBAD)

tops the chart followed by Emirates National Bank of Dubai (ENBD) which has a market share

of 15.4%. Four leading local banks NBAD, ENBD, Abu Dhabi Commercial Bank (ADCB) and

First Golf Bank (FGB) takes more than 50% share of the total banking sector assets.