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The Business Growth of the UAE Islamic Banks
By Nur al-Abd-Allah

[The United Arab Emirates (UAE) has experienced rapid economic development during the past several years, and with this growth came an increase the number of Islamic banks in the country.]

The number of UAE banks that operate according to shari’a (Islamic law) is expected to reach seven, as the country is preparing to launch a new Islamic bank in the emirate of Dubai. There are also plans to convert commercial banks to Islamic banks, similar to the conversion of the Bank of Dubai a few months ago. The issuing of sukuk (Islamic bonds) has opened the door to new roles for Islamic banks, including the financing of infrastructure projects, energy and telecommunications.


Hussein al-Qamzi, a banking expert, estimates the volume of deposits in UAE Islamic banks at 16% of the entire market, or $100 billion dirhams (about $27.22 billion), which is one of the highest percentages in the world. He believes that the increase in the number of Islamic banks will lead to their classification according to capital, assets and deposits. There is a possibility that UAE banks could merge with other Gulf banks, since the GCC banking sector is the most adapted to take advantage of the current oil boom and shift to giant institutions that can compete in foreign markets. The stock market openness and the expected openness of the economy following the establishment of the Gulf Common Market would compel Gulf banks to merge. (1 UAE dirham = $0.2722)

Rules and Regulations

The emergence of Islamic financial institutions required the establishment of a new regulatory regime to govern their operations. In statements to the press, Sultan bin Nasser Al Suweidi, the Governor of the UAE Central Bank, said the Bank is seeking to create mechanisms for the control and regulation of the Islamic banks and financial institutions thatdiffer from those that govern traditional banks. He rejected the notion that the growing popularity of Islamic financial services is due to the atmosphere created by the September 11, 2001 events.

Growing Demand

According to the Supreme Council of the Islamic Financial Banks, the volume of Islamic banking transactions in Arab and Islamic countries is estimated to be $252 billion, with the volume of global Islamic banks and Islamic financial and investment companies amounting to $450 billion. The expectations of the Islamic Development Bank indicate that the average growth in Islamic financial assets would range between 10% - 15% until the year 2015. This is based on the opportunities for the creation of new banks and the conversion of traditional banking services to Islamic banking.

Deposits and Profits Increase

The latest financial statements of the UAE Islamic banks indicate that their deposits amount to 95 billion dirhams (about $25.8 billion) compared with about 85 billion dirhams (more than $23 billion) in 2006. The figures show that individual deposits and investment deposits grew significantly in 2006 compared to the previous year, to more than 36.9%.

In 2006, there were only four Islamic banks in the UAE. These banks achieved strong growth in profits at a 49% rate that reached 2.4 billion dirhams (about $653 million) compared to 1.6 billion dirhams (about $435.5 million) at the end of 2005.

[1] al-Qabas, Kuwait, August 28, 2007. The article originally appeared in Arabic, and excerpts from the article were translated by the staff of www.memrieconomicblog.org.

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