UAE is largest banking economy in GCC - Emirates24|7

UAE is largest banking economy in GCC


The UAE emerged as the GCC’s largest banking economy, with aggregate assets of $335.6 billion (Dh1.23 trillion) at the end of 2007, according to a survey by a leading investment corporation.

The National Investor (TNI), based in Abu Dhabi, also found in its study that the total assets of the banking sector in all Gulf countries have touched $805bn.

Saudi Arabia, which held the top position in terms of assets, is now placed second to the UAE with total assets of $286.9bn, TNI told Emirates Business.

Not only does the UAE lead in asset size, the country has also recorded the highest degree of banking intermediation in terms of loans and deposits, TNI said, and added that the high level of banking penetration is reflective of the relatively developed nature of banking infrastructure in the UAE.  The country’s banking sector has also witnessed robust growth in assets on the back of big-ticket infrastructure projects, real estate investments and consumer spending. “The UAE banking sector witnessed strong growth on the back of a benign interest rate scenario, high oil prices and a favourable macroeconomic environment,” said Mihir J Marfatia, an analyst at TNI.

“The real estate and construction boom in the UAE has offered ample opportunities for growth in banking assets. Oil price-led liquidity in the economy has proved beneficial for the UAE’s banking sector, which has registered robust growth in the past few years,” he said.

With 21 national and 27 foreign banks, the UAE banking sector is maturing quickly, TNI said. National banks account for 77.4 per cent of the total banking assets in the UAE as they have access to the government’s surplus funds and have no restrictions on the number of branches, unlike foreign banks. Aggregate assets of foreign banks increased by 30.4 per cent and of local banks by 22.1 per cent during 2007.

Despite the restrictions on the number of branches, foreign banks are increasing their thrust towards corporate lending, especially for big-ticket projects.

“Local banks are scaling up their operations and are expanding their footprint locally and regionally to combat the increased competition,” Marfatia said, adding that competition from foreign banks is healthy for the sector as it improves customer service, product innovation and operational efficiency.

He said the sector is witnessing continued improvement in terms of disclosure norms and corporate governance standards in line with international best practices. “Local banks will need to be well prepared for the tighter pricing environment that greater competition might imply,” he said.

The UAE has been under pressure from the World Trade Organisation to open up the banking sector to foreign competition. The probability of this happening anytime soon, however, seems unlikely at this point, according to TNI.

Overall, banking penetration in the GCC has been increasing. TNI said the contribution of the UAE’s banking assets to the aggregate GCC banking assets in 2007 stood at 40.5 per cent, followed by Saudi at 34.7 per cent.
Picture by Patrick Castillo