Banking Industry in UAE


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Banking Industry in UAE

  1. 1. Banking Industry in UAE Saba Fatma Manipal University
  2. 2. Presentations……………. <ul><li>Banking industry in the Middle East </li></ul><ul><li>UAE Economy </li></ul><ul><li>Banking industry in UAE </li></ul><ul><li>Future directions </li></ul>
  3. 3. Map of Middle East
  4. 4. Banking industry in the Middle East <ul><li>All GCC countries are members of WTO (KSA was the last to join in 2005) </li></ul><ul><ul><li>Countries need to liberalize their financial markets as part of WTO norms leading to development of banking, securities and insurance industry </li></ul></ul><ul><li>No competition from foreign banks has led to monopolistic advantages to GCC financial institutions, especially banks </li></ul><ul><li>Little to no tax and Islamic prohibition on charging and paying interest results in increased profitability for ME banks compared to their global peers </li></ul>
  5. 5. UAE Economy <ul><li>Recession has affected all sectors of UAE economy with major impact on retail, tourism and real estate </li></ul><ul><li>Focused and timely intervention by UAE government by providing financial support to major projects and injecting liquidity into financial institutions has lessened the impact of global recession in UAE economy </li></ul>
  6. 6. UAE Economy <ul><li>Recovery in oil prices is expected to boost the local economy by providing much needed liquidity to the financial system and helping the government maintain a healthy balance sheet despite increased spending </li></ul><ul><li>UAE is expected to retain dirham’s peg to the dollar. The planned GCC Monitory Union is also expected to take more time than planned. This has meant that the Central bank has limited choices to reduce to control inflation since interest rates have to be aligned to US rates </li></ul>
  7. 7. Banking industry in UAE <ul><li>Banking sector in UAE has been growing by around 30% year on year in the past 5 years </li></ul><ul><li>There are about 25 local banks and 30 foreign banks operating in UAE with a total combined network of about 650 branches </li></ul><ul><li>The number of banks compared to the total population is one of the highest in the world </li></ul><ul><li>Credit shrinkage, project cancellation and manpower reduction has affected banks adversely </li></ul>
  8. 8. Banking industry in UAE <ul><li>Islamic banking in UAE has been witnessing significant growth in the recent years </li></ul><ul><li>Shariah compliant products like Ijarah, Murabaha and Islamic Sukuk have attracted public interest and volumes in these instruments have been growing </li></ul><ul><li>Almost all major banks have either started an Islamic banking division or have converted themselves into Islamic banks </li></ul>
  9. 9. Future directions <ul><li>Government focus on infrastructure development is expect to continue in the coming years. Banks and other financial institutions are expected to participate in this by financing projects and providing credit facilities </li></ul><ul><li>Banks are expected to develop the bonds and derivatives markets to cater to the varying needs of the financial markets </li></ul><ul><li>Small and medium enterprises will require access to credit to allow them to be inline with the growing economy. This in turn will spur banks and other lending institutions </li></ul>
  10. 10. Future directions <ul><li>Oil and related industries, power sector, waste treatment, ports and economic zone development, metro rail project, airport expansion, highway and road building are some of the major projects that are expected to require credit, insurance and other financial services </li></ul><ul><li>Manufacturing sector is expected to grow on the back of government’s focus on non-oil sectors, political stability, favorable tax laws and growing demand </li></ul>
  11. 11. Future directions <ul><li>World capital markets have an almost equal proportion of debt securities, stock market capitalization and bank assets. In UAE, bank assets are disproportionately higher compared to debt securities. This clearly points to the need to development of the bond and derivatives market. This in turn will help improve price discovery and provide better hedging options to corporate and other financial institutions </li></ul><ul><li>UAE is expected to witness a spurt in M & A activity post recession. This will require development of investment banking and financial advisory services </li></ul>