Page 416 - Sustainable Cities and Communities Design Handbook

Business Ventures and Financial Sector Chapter j 19 389

BANKING SECTORdTHE STRUCTURE AND RECENT
DEVELOPMENTS

Islamic finance is a 400 billion USD industry, growing at a rate of over 151%
per annum with an expected high growth rate for the next 15e20 years. Each
Islamic market has developed relatively independently, setting its own regu-
lations and standards, developing a wide variety of products with different
benchmarks and pricing techniques. 38
The UAE financial services sector has served as an important element of
growth toward the diversification of the UAE’s strategy. Abu Dhabi and Dubai
financial sectors constitute the majority of the UAE’s financial system. There
is a sound, modern, and competitive banking industry. In 2011, 23 locally
incorporated banks and 28 branches of foreign banks were operating in the
country. The international financial crisis has had a relatively mild influence on
the banking sector, thanks to the government interventions (the improvement
of banks’ liquidity), which gave a boost to economic activity (the UAE Central
Bank AED 50 billion facility to support local lenders and the UAE Ministry of
Finance AED 70 billion liquidity support scheme). The crisis witnessed in
Dubai in 2008 led its neighbor Abu Dhabi to intervene and provide financial
aid.
In consequence, the capitalization of the UAE’s banking system remains
sound as the capital adequacy ratio increased from 13.3% at the end of 2008
to 21% in 2010. Moreover, the banking sector has a strong deposit base (it
increased from 923 billion AED in 2008 to 967 billion AED in 2010). A
strong capital base has allowed banks to increase lending in the UAE, even
39
during the crisis. The sector remains resilient to shocks, backed by solid
capital base, including money injected by the government, and strong earn-
ings, despite the doubling of nonperforming loans since the global financial
crisis struck.
A renewed worsening of global financing conditions could make it more
difficult to roll over some of the GREs’ maturing external debt, and would
raise the overall cost of their borrowing from international markets. About 32
billion USD of sovereign and GRE debt is estimated to mature in 2012, of
which $15 billion is in Dubai. 40
The UAE banking sector’s capitalization remains sound and is sufficient to
absorb debt problems faced by Dubai GREs. Banks’ credit portfolios in the
UAE have extensive exposures to trade, real estate, and construction sectors.
Bank lending is reviving but credit growth remains sluggish. Lending was up

38. http://www.difc.ae/.
39. INVESTOR’S Guide to the UAE 2010e11.
40. International Monetary Fund, Middle East and Central Asia Department, United Arab Emir-
ates, 2012 article IV consultation concluding statement, March 19, 2012.