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 1.3 trillion at current prices in 2016 (-2.6% growth rate). Meanwhile The Real GDP (GDP in fixed prices) increase from 1.35 trillion in 2015 to 1.39 trillion in 2016 with a growth rate of 3%. Domestic Product for non-oil sectors grow by 3.9% to reach about AED 1.060 trillion (83% of GDP). Financial services sector has contributed with around 10% of GDP and 12% of non-oil sector domestic product with a total value of around AED 130 billion, with a growth rate of 3%
Contribution of financial sector of Nominal GDP
Contribution of financial sector of non-oil domestic product
Contribution of financial sector of the real GDP
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 9 times since 2000, to reach AED 2.6 trillion in 2016, and to realize an increase of 5.5% compared with 2015 constituting around 200% of GDP at current prices and 244% of non-oil Domestic Product and so leading the sector to be the largest in MENA region.
As 2016 local banks (includes the local Islamic banks) accounted for 86% of the total assets to reach around 2.23 trillion., while total assets of the Islamic banks accounted 19% of total banks assets to reach AED 505 billion.
Total deposits increased by 6.2% in 2016 to reached AED 1554 billion compared to AED 1471 billion in 2015.
The financial depth, which represents the ratio of deposits to GDP, reached 122% of GDP and 146% of non-oil domestic product, reflecting the importance of the banking sector for the economy
Gross credit increased by 6% in 2016, reaching around AED 1574 billion compared to AED 1486 billion in 2015. The ratio of lending-to-Stable Resources of banks remained during the whole year of 2015 above 86% and so contributing to financial stability.
As regards Islamic banks, their funding increased by 9.4% in 2016 to reach around AED 335 billion from AED306 billion in 2015.
•Numbers of branches
There was no significant change in the number of branches of banks in UAE in 2016, the number still around 935. Meanwhile, The number of ATMs increased by 3% in 2015, to reach 5243 ATMs,
Capital Market Indicators
The banking sector in the UAE has contributed the majority towards total market capitalization representing 45% in 2015. Telecommunications has contributed 24% and finally the real estate sector, in third place, contributes 17% in 2015. Total market capitalization as at December 2015 was AED693.8 billion
2. Global Competitiveness indicators 2016/2017:
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 Total foreign investments amounted to AED 828 billion in 2015 (7.4% growth), of which about AED 400 billion as Foreign Direct Investment (FDI). The financial and insurance activities constitute from the FDI around
From other side, the domestic loans to deposits ratio hit 99.4% in 2016.
Number of employees in the banking sector decreased by 6% to reach 37,547 in 2016 from 40,159 in 2015. Still has almost tripled since 2000, with UAE nationals constituting around 32% of the work force (around 13000).
5. 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.
6. 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