ROLE OF BANKS IN UAE
Introduction Banks have a disproportionate importance to the well-being of any country's economy. The most important role of banks is in spurring growth. They play a crucial role in providing financing for firms and helping them and, in the process, the overall economy to grow. They also allow individuals to effectively plan and manage their daily needs and financial outgoings. In the UAE, though the financial services sector accounts for about 1.1% of employment, it accounted for 10.2% of non-oil gross domestic product in 2012. Banks also contribute to the economic health of the UAE through employment, and through the job creation role that they play in enabling companies to be established, to thrive and prosper.
The economy
Estimates for the period between 1997 and 2012 show that a 1% rise in real domestic credit is associated with a 0.46% rise in non-oil sector GDP. The linkage is stronger for some components of the economy such as wholesale and retail trade which reflects the nature of the country as a regional business hub. UAE banking sector assets have risen more than ten-fold from US$49 billion in 1995 to US$509 billion (net) in mid-2013 which has catapulted the sector to become the largest financial system in the Middle East and North Africa region. UAE non-oil nominal GDP rose from US$49 billion to US$229 billion in roughly the same time frame.
Another way to measure the importance of the banking sector to the economy is through its financial depth, as measured by banking sector deposits to GDP and non-oil GDP. This stands at 88.9% and 148%, respectively, reflecting the sophistication of the banking system.
Banks have a key role in payments and settlement systems and transaction activity in a modern economy. The UAE banking system cleared 27.6 million cheques with a value of US$306 billion in 2012. The outstanding value of Letters of Credit, which are crucial for facilitating international trade, amounted to US$32 billion,...