Dubai: Offshore Business Sectors
Banking and Finance Sector
The regulatory authority since 1980 has been the UAE Central Bank. At the end of 2012 there were 945 domestic banks, including 805 branches, 23 head offices, 89 pay offices, and 28 electronic banking services units; and 166 foreign banks including 85 branches, 52 electronic banking services units, 1 pay office and 28 head offices. Federal law restricts foreign banks to no more than eight branches each. There are a number of Islamic banks in Dubai.
Bank deposits of more than AED1 trillion were recorded by the end of 2012.
Most banks provide trade, project and consumer financing. Their re-export financing accounts for a large portion of trade finance, and this is viewed as having substantial prospects for growth. Short-term loans (3-6 months) by commercial banks are offered at current interest rates. Project loans are given for five years. Consumer financing is also growing rapidly. Furthermore, the local banking system has well established correspondent relationships with international banks.
Federal law requires that every commercial bank must have a paid-up capital of at least AED40 million. There are few investment or merchant banks at present.
In the UAE, the marketing of financial products and services is regulated by the UAE Central Bank under Federal Law No. 10 of 1980 (the Central Bank Law and related banking resolutions). Enforcement of Central Bank policy, however, is often undertaken by the local licensing authorities in the various Emirates.
The Central Bank Law establishes five principal categories of institutions in the UAE - commercial banks, investment banks, financial establishments, financial intermediaries, and monetary intermediaries - all of which must be licensed by both the Central Bank and the local licensing authorities. In addition to these five categories, current practice in the individual Emirates permits the licensing of financial or investment consultants. These consultants are not required to obtain a Central Bank license.
Commercial Banks The Central Bank Law defines a commercial bank as any establishment which customarily receives funds from the public, grants credit and banking facilities, and conducts other banking operations prescribed for commercial banks either by law or by customary banking practice. In the UAE, customary banking practice includes the marketing and sale of investment products and services, including the sale of securities and various funds.
Central bank regulations announced on April 5, 1993, set the minimum capital to risk-weighted asset ratio at 10%, which is 3% higher than the minimum level recommended by the Basel III requirement. The actual asset ratio was recorded to be 16.3% at the end of 2011.
Investment Banks Central Bank Resolution No. 21 of 1988 regulates the activities of investment banks. Investment banks are defined as merchant or development banks or banks which provide medium or long term financing. The Central Bank Resolution authorizes investment banks in the UAE to offer financial products and services, including the issuance of financial instruments and the management of investment portfolios.
Financial Establishments The Central Bank Law permits financial establishments to lend money and to undertake other financial transactions but does not allow them to accept deposits. The Central Bank has adopted a policy that prohibits financial establishments from offering financial products and services. In comparison to commercial banks, the only activity that financial establishments may undertake which commercial banks may not is the lease of equipment and machinery.
Financial Intermediaries Financial intermediaries are brokers. Regulations issued under the UAE Central Bank Law allow licensed brokers to market and to sell foreign and local shares and financial instruments in consideration for a commission. Local and foreign companies may obtain a brokerage license from the UAE Central Bank.
Monetary Intermediaries Monetary intermediaries are money changers. They are not authorized to market or to sell investment products and services.
Investment Consultants The UAE Central Bank has not published regulations on investment consultancy. Under the existing policies of the individual Emirates, a company licensed as an investment consultant may advise and assist clients in pursuing various investment strategies but may not directly sell investment products. Sales of investment products introduced by consultants are, therefore, typically booked outside the UAE. Consultants are also not expected to receive investment funds from clients, although they may assist in the transfer of those funds. Consultants may not provide credit facilities or open accounts for clients but may assist them in opening accounts with brokers and banks. If properly authorized by the client, the consultant could also manage such accounts.
The UAE Central Bank has moved towards a tighter policy regarding investment companies and financial consultants. Such companies will have to obtain a license from the Central Bank and to report under the rules it has established. Investment Companies for the purpose of these regulations have been defined as undertakings which are involved in investment in securities or in the management of trust funds or investment portfolios on behalf of others. The minimum paid up capital for investment companies (including branches of foreign companies ) is AED25 million, increasing to a larger amount depending on the activities of the company. Financial consultants, on the other hand, are deemed to be individual professionals or groups of professionals providing advice to individuals or companies about the value of securities and other financial instruments or giving recommendation about investing. For these, licenses can be issued with a minimum paid in capital of AED1 million.
Many of the foreign banks in Dubai are established in the Jebel Ali Free Zone (see below) and the Dubai International Finance Centre.
Dubai could be said to be over-banked, and there is intense competition to offer technologically-advanced services - services on offer include mobile phone banking and Internet banking. With plans underway to develop the UAE as a regional e-commerce centre and development of the Dubai Internet City, many banks have developed high-tech banking products and services.