United Arab Emirates
Banking Systems

Includes special features of this country’s banking system and rules/laws that might impact U.S. business.

Last published date: 2019-10-13
The U.A.E. has a robust banking sector regulated onshore by the U.A.E. Central Bank, established in 1980. The Central Bank directs monetary, credit and banking policy and supervises its implementation in accordance with the state's general policy in such a way that it supports the national economy and stability of the currency. It maintains the U.A.E. government’s reserves of gold and foreign currencies, acts as the bank for banks operating in the U.A.E., and serves as the state’s financial agent at international financial institutions.

Banks in the U.A.E. fall in four broad categories: commercial, merchant or investment, Islamic, and industrial. The onshore banking sector is considered overcrowded by many analysts considering the size of the population. It is dominated by local banks most of which are state-owned. As of April 2017, more than 85 percent of the total gross assets of the sector and 90 percent of the network of branches belong to the 23 licensed local banks. In addition, the Central Bank lists 26 licensed foreign banks with 85 branches. A majority of these licenses date from before the establishment of the Central Bank. There are seven banks from Britain, France and the United states, while the rest of the foreign banks are from the Middle East, North Africa and South Asia.   Since 2010, two western banks stopped their onshore operations, and two others curtailed their retail and SME operations citing tougher competition from local banks, money laundering and terrorism finance risk exposure, and difficult working environment. Foreign banks pay a 20 percent tax on their profit and are allowed to open no more than 8 branches. Local banks are exempted from these restrictions.

Banks in the U.A.E. were mandated by the Central Bank to adopt International Accounting Standard (IAS) since 1999. The Commercial Companies Law of 2015, made the adoption of International Financial Reporting Standards (IFRS) mandatory for all companies including banks. In 2006, the Central Bank started implementing capital requirements in line with the second accords outlined by the Basel Committee on Banking Supervision (‘Basel II’). In 2017, the Central Bank introduced new Capital Adequacy Regulations in line with ‘Basel III’.

Islamic banking has expanded considerably in recent years and has become an important element in the U.A.E. banking industry. The number of dedicated Islamic banks in the country has now risen to seven.  In addition, a number of conventional banks offer Islamic banking and financial services. Some financial institutions in the Dubai Financial Market use Financial Accounting Standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI).

Traditionally, trade and building sectors receive a major share of bank loans.  Banks lend to the services, trade, and building sectors due to the scarcity of major investment scope in other productive sectors. 

Decreases in oil prices since 2015 have slowed overall economic growth and driven a dramatic decrease in government projects and a restructuring of private businesses affecting the liquidity, profitability and asset quality of local financial institutions. Since 2015 the number of foreign and local licensed bank branches and the number of employees in the banking sector decreased significantly as banks try to cut costs. Results from the March quarter Credit Sentiment Survey 2017 published by the Central Bank revealed “a modest demand growth in overall credit appetite. The demand for both business and personal loans has improved slightly, moving back into the positive territory for the first time since Q3 2016, partially reflecting the recovery of the oil price and the moderation in the pace of fiscal consolidation”.

During the global economic downturn in 2008, non-performing loans became a burden for a number of Emirati banks. In some cases, expatriate borrowers defaulted and fled the country.  The federal government, through the Central Bank, stepped in to guarantee the deposits in all local banks. 

Public sector transactions in the emirates of Sharjah, Fujairah, Ras Al-Khaimah, Umm Al-Qaywayn, and Ajman require the guarantee of the federal government.  Therefore, coverage under EXIM’s Working Capital Guarantee Program (WCGP) for public sector transactions for the above may be considered if supported by an irrevocable LC.