Most of the 52 banks in the UAE have reported positive results during the last three consecutive quarters. 'I do not think that UAE banks are deeply involved in the subprime crisis', Peter M. Baltussen, CEO of Commercial Bank of Dubai, number nine in the market, said in October 2007.
As far as banks under UAE law are concerned, Baltussen proved to be right.
Less affected by the financial crisis
Although financials were hit hard at the Dubai Financial Market (the DFM Bank Index lost on a 12-month basis - as of October 30 - 40.78%, outperforming the DFM General Index by an insignificant 3.7%) the financial crisis did not trigger shock waves.
Double and even triple-digit profit increases were reported, especially by the Islamic banks for the first nine months in 2008. The healthy development should not be mixed with the banks and financial intermediaries licensed in the DIFC, which is not governed by the UAE Central Bank, but by the Dubai Financial Services Authority (DFSA).
The DFSA is the sole regulatory of the 2004-created DIFC, where 243 authorised firms reside. Among them are leading banks like ICBC of China, Citigroup, HSBC, Deutsche Bank or Credit Suisse.
Other major players in the GCC are Saudi Arabia's National Commercial Bank (NCB) and Al Rajhi Bank (and National Bank of Kuwait). The latter also has the biggest network abroad, with branches in Singapore, Baghdad, Jeddah, Geneva, London and New York.
Financial Institutions are reaping benefits from the government's strategy of positioning Dubai as the pivot hub between East Asia and Europe. Trade is on the rise, and the real estate sector became the main driver.
In August 2007 total bank deposits in the UAE crossed $1bn for the first time. However, Standard and Poor's has revised six GCC bank's outlook from positive to stable, among them Emirates NBD.
With falling oil prices, an expected economic slowdown and liquidity tightening, S and P argues, creates fresh challenges to the banks. The government's support should help Dubai's financial sector to continues to follow the three paths it has chosen during the last five years, which are expansion, specialisation and internationalisation.
Bank expansion
In terms of expansion it is enough to drive Dubai's main roads and to walk up and downs the city's major shopping malls to see the growing numbers of branches and ATM stations.
With the emirate's total population growing from below one million to roughly 1.5 million, local and foreign banks have been keen in attracting retail clients. With Dubai's population doubling every five years, banks have expanded their product line.
Each of the over 1.2 million expatriates needs access to ATMs, credit cards, deposit facilities and real estate financing solutions. Three new bank licenses have been granted for foreign banks since 2007: for Doha Bank, Saudi's Samba Financial Group and NBK.
But expansion knows precise borders in the UAE: By law, foreign banks are not allowed to operate more than eight branches in the country.

Gérard Al-Fil, Financial Journalist



