The United Arab Emirates has a fragmented banking sector consisting of both domestic and foreign banks. The sector is dominated by five large banks and is regulated by the UAE Central Bank. Recent reforms in 2018 have strengthened banking regulations and oversight. Looking ahead, UAE banks face challenges from digital disruption and economic volatility, but opportunities exist in expanding digital services and partnerships like with Expo 2020.

1. .
Global Business Environment
UAE Banking Sector
Submitted to:-
Dr. Jagdish Shettigar
Dr. Monika Jain
Submitted by:-
Himanshu Talmale
20DM084

2. Introduction
The United Arab Emirates (UAE) is a federation 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 country is traditionally an oil and gas exporting
nation. Currently, each of the emirates has a relatively stable economic and political system, and
the country has an ambition to emerge as a financial and service sector leader in the Middle East.
UAE has proven crude oil reserves of around 98 billion barrels (or 10% of the world’s reserves).
The oil wealth is concentrated in Abu Dhabi, which contributes approximately 90% of the total oil
production of the country. UAE also boasts substantial reserves of natural gas, accounting for 4%
of the world’s reserves. The bulk of gas reserves (over 90%) are located in Abu Dhabi as well.
The emirate of Dubai has also become an important financial center in the UAE because of its
significant financial and services industries. Abu Dhabi and Dubai have emerged as the two most
important emirates of the UAE.
UAE banking Sector
The UAE has a fragmented banking sector. A total of 49 domestic and foreign banks are operating
in the UAE. There are 26 foreign banks and 23 local banks in the UAE. The banking sector is
somewhat protected; however, foreign banks are becoming increasingly active in the economy.
The banking sector is gearing up to meet global challenges by adopting Basel II banking
standards. The big five banks dominate the banking sector and account for about 60% of the
banking sector assets; all of the large ten banks are financially sound. The banking sector is well
managed by the UAE Central Bank which is a positive factor for the country’s growth and
globalization efforts because the UAE banking sector has grown dramatically and is gearing up
for global competition. This picture clearly shows large banks dominate the industry in the country.
Islamic banks are also an integral part of top banks in UAE, collectively it accounts for 19% of the
total banking sector. There are a total of 8 full-fledged Islamic banks and 23 Islamic windows set
up by other traditional banks in the UAE region. According to Islamic banking laws, banks cannot
charge a fixed interest rate on deposits or loans. Variable interest rates based on a profit / loss
sharing model is the foundation of Islamic banking.
Market access forforeign banks in the past was somewhat limited because they were not allowed
to open more than eight branches throughout the modern banking operation (1980-2003). In
2003, however, laws were changed, and today banks are allowed to open more than eight
branches but special permission is required. Foreign banks confronted no obstacles, however,
when they wanted to open a representative office. At the end of 2004, there were thirty-six
representative offices throughout the emirates. Thus, UAE has been well represented by a cross-
section of foreign banks. Islamic banking is still a small component of the UAE banking sector
Under the Federal Law 10, the Central Bank of the UAE was also established, and it took over
the responsibilities of the Currency Board. The bank's duties include advising the government on
monetary and financial issues, issuing currency, maintaining gold and foreign currency reserves,

3. and formulating a credit policy. All regulation and supervisory duties are under the direction of the
Central Bank. The UAE currency is pegged to the US dollar, which is why the central bank has a
limited role to play in setting monetary policy and controlling interest rates; however, some
monetary and credit controls are exercised through its sale and purchase of certificates of
deposits. The central bank plays a role in formulating and monitoring credit policy, and in
supervising the financial sector as well. All commercial banks incorporated in the UAE are
licensed by the central bank, and therefore are subject to the central bank’s requirements and
regulations. In 1998, the central bank made it mandatory for all banks to use International
Accounting Standards (IAS), and in early 1999, local banks were instructed to establish clear
corporate structures. Furthermore, the UAE 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 of UAE
regulations, all banks must be majority owned by UAE nationals. They also have to be registered
as “Shareholding Company” under the UAE Companies Law and must be registered with the
Federal Ministry of Economy and Trade. (Central Bank of the UAE, 2005)
Banking Regulation
The regulatory framework for banking in the UAE is based on the Banking Law. The Banking Law
came into force on 30 September 2018 and repealed the previous banking law, Federal Law No.
10 of 1980. Under the Banking Law, the Central Bank of the UAE was created and entrusted with
the issuance and management of the country's currency, and the regulation of the banking and
financial sectors.
The Banking Law provides for the licensing and regulation by the Central Bank of:
a. banks, which are defined to include institutions licensed to primarily carry on the activity
of accepting deposits and other licensed financial activities such as granting loans, issuing
and collecting cheques, placing bonds, trading in foreign exchange and precious metals,
or carrying on other operations allowed by law or by customary banking practice;
b. exchange houses and money intermediaries (i.e., foreign exchange dealers who purchase
and sell currencies);
c. Islamic financial institutions, which are defined as financial institutions licensed to
undertake all the activities of a commercial bank, but in accordance with the principles of
Islamic shariah;
d. Other financial institutions.
Changes Introduce by banking law 2018
a. Federal Law No. 10 of 1980 Concerning the Central Bank, the Monetary System and the
Organisation of Banking and Federal Law No. 6 of 1985 Concerning Islamic Banks,
Financial Establishments and Investment Companies have been repealed. All existing
Central Bank regulations, circulars and decisions issued under these repealed laws will
remain in force for a period of three years, unless replaced by new regulations, circulars
and decisions;

4. b. licensed financial institutions are now prohibited from charging customers interest on
accrued interest charged on any credit or funding facilities;
c. the establishment of a Financial Activities Committee under the Ministry of Finance
(composed of a member from each of the Central Bank, the Emirates Securities and
Commodities Authority and the Insurance Authority) has been contemplated to opine on
the introduction of new financial activities within the purview of the Banking Law
d. provisions pertaining to mergers of licensed financial institutions have been introduced
e. provisions pertaining to governance, financial infrastructure system oversight and
maintenance of customer confidentiality have been introduced
f. provisions concerning credit control within banks (including restrictions on loans to
management) have been introduced; and
g. The Central Bank's enforcement powers have been strengthened by granting it authority
to impose a wider range of penalties.
Competition
The vital task of banking in the economy decrees competition among banks as an essential and
appropriate policy concern. The UAE banks faces a number of strong breezes; broad
enhancement in digital technology coupled with new market participants and non-bank financial
institution. Tightening liquidity, margin compression, rise in loan impairments, increased cost of
funding, acute inflation and prolong period of low oil prices and economic volatility has handcuff
the hands of the banks. Previous years have provided important lesson with regard to factors that
has influenced the degree of competition. The relaxation of banking policies and regulations have
caused an increase in number of banks and non-financial intuitions, the upshot has led to the
concentration in the banking sector. Although concentration has increased, its explicit impact on
competition in the USE banking sector remains a vital question. The financial system in UAE is
broadly bank based and weakly constable, therefore, any complete bank failure would have
serious infectious consequences in the economy. Competition increase efficiency, lower prices,
and enhance choices and innovation. It remove obstructive exercise and lessens margin between
deposit and lending rates, thereby cultivating the concert of the banking industry.
Foreign competition for UAE banks soon
The UAE is going to open up its banking sector by applying a policy that is non-discriminatory
towards foreign institutions, and advances Emiratisation and the security of the financial services
sector. Recently "The UAE Central Bank has consulted the national banks and fin-ancial
institutions on the Free Trade Agreement negotiations with the US to receive their feedback,” and
the major issues related to the FTA negotiations include Emiratisation in the financial sector,
(particularly in banking), of ownership, shareholding and board representation, security of assets,
support and encouragement for the growth of the financial private sector.
The main demands the UAE faces in the FTA negotiations concerning financial services concern
removing restrictions on the number of bank licenses, on setting up branches of foreign banks,
on foreign ownership, and on the employment of senior management and board members of any
nationality.

5. Banking prospective 2020
As we enter an age of tremendous interconnectivity, many banks are keen to digitalize their
customer experience, their services and their products, and expand beyond the confines of their
traditional bricks-and-mortar service models.
It have been observed a healthy trend of increasing banking profitability over the past few years,
with growth of 13.9% in net profit among the top ten UAE banks. The primary reason appears to
be stronger non-interest income performance and certain one-off events. The initial, conservative
view that was widespread when IFRS 9 was implemented is gradually disappearing.
On a more somber note, it may be advisable for banks to reassess their disclosure obligations
regarding business risks related to the potential impactof Covid-19 within the context of their local
regulatory requirements. The Central Bank of the UAE (CBUAE) has been proactive in rolling out
stimulus packages and has announced a comprehensive AED 256 billion ‘Targeted Economic
Support Scheme’ to contain the repercussions of the coronavirus pandemic.
Despite the challenges presented by the pandemic, we are seeing an increasing focus on open,
connected banking: successfulorganizations tend to be those that put their customers atthe heart
of their strategy. The concept of ‘banking the ecosystem’, which is an interconnected set of
services where customers can fulfill a variety of needs in a single integrated experience, may
represent the cornerstone of digital banking in the future. Banks across the UAE are also
embracing blockchain, which offers benefits including operational efficiencies, reduction of
intermediary costs, and a culture of transparency.
Indian Banks in UAE
Bank of Baroda which is the only Indian bank holding a license from the UAE authorities for
conducting full-fledged banking operations, has been in operation in UAE since 1974. BOB has
one zonal office, six branches and four CustomerService Centers (CSCs)across UAE. Similarly,
Abu Dhabi Commercial Bank has two branches in India and Mashreq Bank one. The National
Bank of Abu Dhabi (NBAD) launched its banking operations in India on 2nd November 2015.
Canara Bank and State Bank of India manage exchange centers in UAE in collaboration with local
money exchange houses.Other Indian Banks with representative offices in the UAE include Bank
of India, HDFC Bank Limited, ICICI Bank Limited, Punjab National Bank, Union Bank of India,
Federal Bank, Andhra Bank, Corporation Bank, Axis Bank, Indian Overseas Bank (IOB), Indusind
Bank Ltd. etc.

6. SWOT Analysis
Strength
 Stable shareholders base and diversified business model
 Leading in innovation in digital banking
 Leading the way in the Islamic Finance Market through Emirates Islamic
 Consistent financial performance history with strong ratings
Weakness
 Reduced in headcount amid economic downturn and property market weakness
Opportunities
 Official banking partner of Expo 20202 Dubai
 Expansion in the Kingdom of Saudi Arabia
 Attractive growth market in Indian Markets
Threats
 Politically instability, tension and civil wars in Middle East region
 Slowdown due to pandemic and weak oil prices
 Lower consumers’ sentiments and delays in leveraged finances investments
Post COVID-19
Lower Profitability Will Be New Norm
After dropping in 2020, it is expect UAE banks’ interest margins to stabilize at lower levels,
mirroring exceptionally low interest rates globally and locally. A significant contribution of non-
interest bearing deposits to the funding profiles of UAE banks did not help. – As cost of risk
continues to increase, UAE banks’ profitability will keep declining, with limited prospect of
returning to historical performance over the medium term. – Cost-reduction initiatives will
therefore be on top of banks’ management agenda. Reducing real estate footprints, relocating
staff to lower cost areas, and leveraging the opportunities offered by digitalization will be among
their action plans. – Lower profitability, or even losses for some players with high-risk exposures,
could provide the impetus for further consolidation of the banking system.

7. UAE Bank Ratings
Ratings as of Jan. 25, 2021. All rated UAE banks carry a negative outlook, owing to the current
weak operating environment. Outlooks could be revised to stable if we perceive that asset quality
deterioration will remain within our base-line expectation, banks maintain strong capital buffers,
and risks related to the operating environment recede. By contrast, we could lower the ratings if
asset quality deteriorated significantly alongside increasing pressure on the operating
environment.
First Abu Dhabi Bank AA-/ Negative/ A-1+
Abu Dhabi Commercial Bank A/ Negative/ A-1
Mashreq Bank A-/ Negative/ A-2
Sharjah Islamic Bank A-/ Negative/ A-2
National Bank of Fujairah BBB+/ Negative/ A-2

8. Reference
https://www.spglobal.com/_assets/documents/ratings/research/100048588
https://www.spglobal.com/_assets/documents/ratings/research/100048588
https://www.statista.com/statistics/715828/uae-total-assets-by-major-commercial-banks/
https://www.researchgate.net/publication/265987525_An_Analysis_Of_The_United_Arab_Emira
tes_Banking_Sector#:~:text=The%20UAE%20has%20a%20fragmented,adopting%20Basel%20
II%20banking%20standards
https://www.researchgate.net/publication/265987525_An_Analysis_Of_The_United_Arab_Emira
tes_Banking_Sector#:~:text=The%20UAE%20has%20a%20fragmented,adopting%20Basel%20
II%20banking%20standards
https://www.statista.com/statistics/715828/uae-total-assets-by-major-commercial-banks/