Sectorial Overview Banking & Finance August 2013
Industry Basics Current Trends UAE Bank Rankings UAE s Legal Framework for Banking Dubai International Financial Center (DIFC) UAE s Stock Exchanges Planned Projects and Future Development Islamic Finance Outward Investment German Banks in the UAE Conferences and Trade Fairs Selection of Sources and Publications Table of Contents
Industry Basics Since mid-2000 the UAE, and in particular Dubai, has established itself as the regional financial center and banking hub in the Middle East, a position which in the past decades was held by Beirut and, more recently, Bahrain Dubai s status as an international banking center derives from its large center for reexports, extremely good financial and communications infrastructure and high political stability There are 23 locally incorporated commercial banks operating in UAE since 2011 with some 768 branches, compared to 28 foreign banks with 110 representative offices registered 24 finance companies, 22 investment companies, and 119 licensed money-changers maintain some 628 branches are located in the UAE After the international financial crisis,dubai has recovered and strengthened its position as a banking center in the Middle East, Africa, and beyond over the past years, also due to the political unrest in several countries in the region
Current Trends Total assets of UAE banks stood at Dh 1.66trn ($452bn) at the end of 2011 assets-to-gdp ration 137%. The UAE banking sector has grown about 30% y-o-y for the past 5 years, making it one of the fastest growing economies worldwide Over the past 4 years, banks have increased their liquid assets ratio, distribution network and impaired loans ratio. Simultaneously, the loan-to-deposit ratio has decreased to 86%, and Margins and Costs to Income Ratio has also declined significantly Trend of divergence in UAE s banking sector: Dubai private sector vs. Abu Dhabi public sector Dubai s banking sector is likely to attract more Asian banks
UAE Bank Rankings 2012 UAE Bank Ratings 2012, Q1 Bank Assets (Dh bn) Equity (Dh bn) Profits (Dh m) Emirates NBD 296.7 28.8 641 NBAD 289.3 27.1 1041 ADCB 182.9 23.1 800 FGB 159.7 26.1 935 DIB 92.5 9.9 245 UNB 86.1 13.1 471 Mashreq 76.6 12.8 271 ADIB 74.3 8.6 307 CBD 39.4 6.2 242 RAK 24.7 5 325 Source: The Report Dubai 2013, Oxford Business Group
UAE s Legal Framework for Banks Chief supervisor and regulator for the domestic banking sector: Abu Dhabi-based Central Bank of the UAE (CBUAE). CBUAE organizes banks to ensure their financial stability. Occasionally regulations are issued by the Central Bank to achieve this objective. Regulator for domestic stock exchanges: Emirates Securities and Commodities Authority (SCA). Through implementing legislations, the SCA aims to protect investors, improve the profitability of UAE capital markets and develop investment as well as legal awareness. Regulator for Banks registered at Dubai International Financial Center (DIFC) and NASDAQ Dubai: Dubai Financial Services Authority (DFSA). The independent DFSA s approach is to be risk-based and to avoid unnecessary regulatory burden. It supervises all financial services conducted in the DIFC, as well as persons in the DIFC in relation to anti-money laundering, counter-terrorist financing and sanctions compliance. UAE s legal framework for the banking sector is based on three laws: 1980 Banking Law, 1985 Islamic Banking Code, 1993 Commercial Code After the international financial crisis, UAE laws were revised to include a number of restrictions on lending as well as liquidating assets to meet CBUAE obligations
Dubai International Financial Center (DIFC) Dubai International Financial Center (DIFC) UAE s first financial free zone Since its opening in 2004, DIFC has acted as a platform for business and financial institutions by offering a legal system mostly consistent with Common English law. Banks registered in DIFC can be 100% foreign-owned. DIFC has become the Gulf s top financial center, housing regional headquarters for many of the world s biggest banks and finance firms DIFC is regulated and supervised by DFSA and has its own court. 21 of the world s top 30 banks and 8 of the worlds top 10 insurance companies have been present in DIFC since 2011 Since the DIFC's establishment more than 900 companies have set up there, employing over 14,000 people
UAE s Stock Exchanges UAE has the most developed stock exchange in the region, ranking among the top three best-performing worldwide in May 2013 Two Dubai stock exchanges under the umbrella of Bourse Dubai: o NASDAQ Dubai operating in DIFC: Twelve companies listed with 20 derivatives o Dubai Financial Market (DFM): 67 companies listed, along with eight conventional bonds, six islamic bonds and 16 mutual funds. Despite a decrease in the DFM traded value of sectors such as banks and real estate in 2010, most sectors have started to recover in 2011, with the banks sector even showing an increased traded value. Abu Dhabi Security Exchange (ADX) mainly lists Abu Dhabi-based entities. o ADX and DFM are linked together via live market-watch screens to constitute the Emirates Securities Market (ESM) listing the movements of securities from Abu Dhabi and Dubai. o Due to screens in Sharjah, Ras Al Khaimah and Fujairah ESM offers a UAE-wide platform for traders Jumeirah Lakes Towers free zone is home to Dubai Multi Commodities Centre (DMCC) with the Dubai Gold and Commodities Exchange (DGCX). o The value of contracts traded on DCGX more than quadrupled between 2008 ($57.43 bn) and 2012 ($372.8 bn)
Planned Projects and Future Developments Abu Dhabi World Financial Market (ADWFM) ADWFM is a planned new financial free zone on Al Maryah Island, expected to be operational by the end of 2013. It s legislative system will be based on British law and 100% foreign ownership will be offered, free of tax. According to Gulf News, IMF and World Bank are to have offices in ADWFM. World s Tallest Office Tower in DMCC as a location for finance companies Dubai Multi Commodities Center plans to build an office tower in the DMCC free zone to attract finance companies looking for at least 5,000 sq. meters of office space, however construction plans have not yet been finalized and no completion dates have been announced yet. Establishment of Al Etihad Credit Bureau Al Etihad Credit Bureau was set up by the federal government in early 2012, and started the collection of consumer credit data in May 2013. The new platform, once operational, will allow financial institutions in the Gulf state check consumers creditworthiness before lending to them.
Islamic Finance Despite Islamic Finance still being a niche market in the global financial markets, the sector has been growing rapidly. Key Islamic financial centers are based in Malaysia and the Gulf regions, Muslim majority countries, but major centers also exist in the non-muslim world, e.g. in Singapore, London, Paris and New York. Influential financial institutions, such as the World Bank and IMF are actively participating in developing this field. The financial crisis sparked a search for more viable, stable and ethical alternatives. Debates about the future of finance are occurring worldwide. This resulted in a wider interest in Islamic finance also from Non-Muslim clients. Global Financial Assets of Islamic Banks in 2011: worth $1.2 trn, observed growth of 150% over past 5 years. Source: MEED
Islamic Finance Islamic Banks in the UAE are regulated by the Central Bank of the UAE Main Islamic banks in UAE: o Dubai Islamic Bank (DIB) o Emirates Islamic Bank (EIB) o Noor Islamic Bank (NIB) Many conventional banks and financial institutions are increasingly becoming interested in Islamic finance and investment and have opened Islamic Windows offering Shariah compliant products Real Estate Financing as main asset base: market recovery from 2008 finance crash, with Emaar (main local real estate company) doubling its profits in 2012 causing Islamic Bank s income to increase as well Islamic Insurance Companies (Takaful) also observed a profit rise starting in 2010 Each bank has its own Sharia Board, leading to a spectrum from conservative to more liberal Islamic banks Shariah compliant products, such as Sukuk and Murabaha have attracted public interest and are expected to grow in volume
Outward Investments GCC Sovereign Wealth Funds (SWFs) count to the world s richest and are significant players on the international investment stage In order to form a security net to protect from oil-related risk, the UAE devotes a portion of its reserves to an SWF that invests on the global markets in other types of assets to diversify its revenue streams. List of UAE government-owned investment institutions: Abu Dhabi Investment Authority (ADIA) Abu Dhabi Investment Council (ADIC) Mubadala Development Company (MDC) International Petroleum Investment Company (IPIC) Dubai World Dubai International Capital (DIC)
German Banks in the UAE A number of German banks have set up shop in the UAE to capitalize on corporate banking flows between the Gulf state and Europe, as well as delve into wealth management and Shariah-banking business German banks in the UAE: o BHF-BANK Representative Office Abu Dhabi o Commerzbank AG Dubai branch (DIFC) o Deutsche Bank AG Abu Dhabi Branch o Deutsche Bank AG Dubai branch (DIFC) o KfW IPEX-Bank GmbH Rep. Office Abu Dhabi o Landesbank Baden-Württemberg Representative Office Middle East (DIFC)
Conferences and Trade Fairs Trade Fairs in UAE MENA Forex Show: Managed Funds and Investment Opportunities Expo and Conference, 25 26 April 2013, Jumeirah Emirates Towers, Dubai AIM Congress: Annual Investment Meeting, 30 April 2 May 2013, Dubai International Convention and Exhibition Center Cards & Payments Middle East, 14 15 May 2013, Dubai International Convention and Exhibition Center Financial Technology Summit & Meetings - Middle East, 27 28 May 2013, JW Marriott Marquis Dubai SIBOS 2013, 16 19 September 2013, DWTC, Dubai. Annual conference, exhibition and networking event organized by SWIFT for the financial industry International Conference on Business, Economics, and Financial Sciences, and Management, 22 23 October 2013, Crowne Plaza Hotel Dubai
Selection of Sources and Publications Abu Dhabi Securities Exchange Central Bank UAE Dubai International Financial Center Dubai Financial Market Dubai Financial Services Authority Emirates Securities and Commodities Authority NASDAQ Dubai MEED www.adx.ae www.centralbank.ae/en www.difc.ae www.dfm.ae www.dfsa.ae www.sca.gov.ae www.nasdaqdubai.com www.meed.com Oxford Business Group (2013): The Report Dubai 2013 Emirates NBD: Outlook for UAE Banking Sector (2011)