Islamic Banks Constitute 21% of UAE’s Gross Domestic Credit in the UAE

KUALA LUMPUR:  The UAE banking industry has shown remarkable growth in 2024, with Islamic banks playing a crucial role. The Central Bank of the UAE (CBUAE) reports that gross credit provided by Islamic banks increased by 1.1 percent in the first four months of the year, reaching AED 433.7 billion ($118 billion). This impressive figure accounts for over 21 percent of the total bank loans and financial facilities, highlighting the expanding influence of Islamic banking within the UAE’s financial sector. This trend underscores the strategic importance of Islamic banks in driving economic growth and stability in the region.

Key Developments in the UAE Banking Sector

The latest data reveals that gross credit extended by conventional banks during the same period increased by 4.3 percent, totaling AED 1.629 trillion. Investments by Islamic banks grew by 9.8 percent to AED 145.7 billion, while investments by commercial banks rose by 3.7 percent to AED 520.5 billion. These figures highlight a strong performance across both Islamic and conventional banking sectors, driven by strategic regulatory frameworks and robust economic policies.

Asset Growth and Market Share

Islamic banks operating in the UAE saw their assets amount to AED 737.4 billion, making up 17.16 percent of the total banking sector assets. In comparison, commercial banks’ assets reached AED 3.559 trillion by the end of April 2024. This growth reflects the broader trend of increasing market participation and asset accumulation within the UAE banking industry.

Deposit and Transfer Trends

In terms of deposits, Islamic banks recorded a 7.4 percent increase, reaching AED 532.3 billion, while deposits at commercial banks grew by 7.8 percent to over AED 2.185 trillion. Additionally, the value of transfers executed through the UAE Funds Transfer System (UAEFTS) reached approximately AED 6.12 trillion ($1.66 trillion) in the first four months of 2024, marking a 20 percent year-on-year increase. These developments indicate a dynamic and expanding banking sector, supported by significant financial activities and transactions.

Economic Impact and Future Outlook

The UAE banking sector’s continued growth trajectory is further evidenced by the increase in net profits, with a 31 percent rise reported in 2024. This surge is attributed to favorable business environments, regulatory reforms, and increased foreign investments. The UAE Central Bank’s focus on strengthening governance and compliance frameworks has also contributed to this positive trend, ensuring greater transparency and accountability within the sector​ (KPMG).

Regulatory Reforms and Technological Advancements

As digital transformation gains momentum, UAE banks are exploring new technologies such as artificial intelligence (AI) and machine learning (ML) to enhance financial crime detection and compliance. The adoption of cloud computing and digital banking services is expected to provide scalability, flexibility, and improved customer experiences, positioning the UAE as a leader in innovative banking solutions. Banks in the UAE are now investing heavily in digital growth strategies that include the implementation of AI for customer service and operational efficiency.

Consumer Satisfaction and Challenges

Despite these advancements, customer service remains a significant area of focus. According to a KPMG study, the UAE banking sector has seen improvements in consumer satisfaction, with a 7-percentage point rise in net sentiment from the previous year. However, issues such as slow turnaround times, non-responsiveness, and staff competency continue to be challenges that banks must address to maintain and improve customer relations​ (KPMG).

Investments and Financial Stability

The financial stability of the UAE banking sector is underpinned by substantial liquid assets, which reached AED 742 billion by the end of the fourth quarter of 2023. This 29 percent year-on-year increase in liquid assets demonstrates the sector’s ability to meet short-term obligations and fosters confidence among investors and stakeholders. Moreover, the Tier 1 Capital Adequacy Ratio increased to 16.6 percent, further indicating a robust and resilient banking system​ (HiDubai Focus).

Strategic Initiatives and Future Prospects

To further enhance its global standing, the UAE banking industry is focusing on strategic initiatives such as expanding its compliance teams and investing in regulatory technology platforms. These measures are aimed at improving risk management and ensuring adherence to international standards. The sector’s commitment to continuous improvement and innovation is expected to drive sustained growth and attract more international investments​.

Through continuous efforts and strategic initiatives, the UAE banking industry is poised for sustained growth. By leveraging technological advancements and robust regulatory support, the sector aims to enhance its global standing and economic impact. The proactive measures taken by the Central Bank of the UAE, along with dynamic strategies employed by individual banks, ensure that the UAE remains a highly competitive and attractive destination for financial services. This combination of innovation, regulatory excellence, and strategic foresight is set to drive long-term success and solidify the UAE’s position as a leading financial hub.