Banks play a key role in establishing a well-developed financial system within the country, which is vital in securing sustainable growth. Through providing finance to individuals and firms as well as creation of jobs, banks contribute to the overall wellbeing and growth of the economy.
So, a reliable and strong banking system is considered as a primary pillar of a sustainable economic development.
1. Banks and the Economy
The banking sector in UAE plays a dynamic role in the economic development through the mobilization of financial resources and providing the required financing for the support of the national economy and creating the required investments for that purpose.
Gross Domestic Product (GDP), key indicator of growth, stood around AED 1.4 trillion at current prices in 2015 (-0.7% growth rate). Meanwhile The Real GDP (GDP in fixed prices) increased from 1.141 trillion in 2014 to 1.184 trillion in 2015 with a growth rate of 3.1%. Domestic Product for non-oil sectors grew by 7% to reach about AED 1.040 trillion (77% of GDP). Financial services sector has contributed with around 10% of GDP(increased by 2%), and 13% of non-oil sector domestic product with a total value of around AED 133 billion, and so leading all sectors in terms of growth of 9%
Contribution of financial sector of Nominal GDP
Contribution of financial sector of non-oil domestic product
The main drivers of growth of the banking sector can be summarized as follows:
•The size of assets:
Total assets of the banking sector in the UAE rose by 8 times since 2000, to reach AED 2.4 trillion in 2015, and to realize an increase of 7.4% compared with 2014 constituting around 182% of GDP at current prices and 238% of non-oil Domestic Product and so leading the sector to be the largest in MENA region.
As of 2015 local banks (includes the local Islamic banks) accounted for 85% of the total assets to reach around 2.089 trillion., while total assets of the Islamic banks accounted 19% of total banks assets to reach AED 464 billion.
Total deposits increased by 3.3% in 2015 to reached AED 1471 billion compared to AED 1421 billion in 2014.
The financial depth, which represents the ratio of deposits to GDP, reached 108% of GDP and 141% of non-oil domestic product, reflecting the importance of the banking sector for the economy
Gross credit increased by 8% in 2015, reaching around AED 1486 billion compared to AED 1378 billion in 2014. The ratio of lending-to-Stable Resources of banks remained during the whole year of 2015 above 85% and so contributing to financial stability.
As regards Islamic banks, their funding increased by 15% in 2015 to reach around AED 306 billion from AED 266 billion in 2014.
•Numbers of branches
There was no significant change in the number of branches of banks in UAE in 2015, the number still around 1004. Meanwhile, The number of ATMs increased by 5.6% in 2015, to reach 5119 ATMs,
2. Capital Market Indicators
The performance of investment and financial services declined significantly in the capital market during 2015. The trading activities decreases by 27.1% in 2015. The telecommunication sector registered an increase of 49%. The consumption goods sector came in second with rise of 30%/ While all other sectors recorded a decrease in their activities, and so indicating the level of investors' confidence in the banking sector in UAE.
3. Global Competitiveness indicators
According to the Global Competitiveness indicators (GCI), The UAE improves by one place to 16th (out of 138 countries) as it continues to lead the Middle East and North Africa region, building on improvements in competitiveness in recent years. This year gains in areas such as technological adoption and business sophistication. Overall, the UAE boasts a number of competitive strengths: infrastructure in top notch (4th overall), goods, and labor markets are open and efficient.
The financial sector has secured the lion's share of foreign investment. The volume of foreign investments amounted to AED 770 billion in 2014 of which about AED 393 billion in financial and insurance activities (52% of the total foreign investment).
From other side, the domestic loans to deposits ratio hit 94% in 2015.
Banks in UAE contribute favorably to the welfare of the country and its people by generating employment opportunities. Number of employees in the banking sector increased by 3% to reach 40159 in 2015 from 39,051 in 2014. Still has almost tripled since 2000, with UAE nationals constituting around 32% of the work force (around 13000).
6. Corporate Governance
Corporate governance holds great significance because of the integral role it plays in safeguarding the interests of all stakeholders. Banks in the UAE adopt the best practices in corporate governance to enhance operations and generate higher returns on investment, which will boost their profitability and drive economic growth. Through corporate governance mechanisms, banks can monitor executive decisions and be more accountable for their actions and by doing so protect the interests of shareholders, which will drive more investments.
7. Corporate Social Responsibilities (CSR)
Banks in UAE attach great interest to Social responsibility. They take a lead in the local social responsibility and key issues which are of an interest for the community and nation at large. The banks role extends beyond granting credit facilities to cooperate with the government and private entities as social initiatives and programs which contribute to the process sustainable development