The United Arab Emirates (the UAE) is a country that has the huge oil reserves. Oil deposits were discovered on the territory of the UAE in the 50s of the 20th century. That period became the beginning of the rise of the economy in the UAE. Just over a quarter century, the UAE economy has become one of the leading countries. The foreign investors have become interested in the country and its industry. They did not miss the chance to possess a part of the economic market of the UAE. Naturally, each economically growing country has a well developed banking system, which is a tool for the implementation of different types of operations. To support their economy and to carry out banking operations of any type, the United Arab Emirates created a complex banking system.
The UAE banking system is the system of financial institutions that includes 21 local banks, with the network of 330 branches and 48 foreign banks. It consists of the Central Bank of the UAE, investment banks, branches of the foreign banks (including Islamic), as well as local commercial banks (full and limited license). At the head of this system, there is the National Bank of “Emirates NBD” or Central Bank. This bank grants a license to the local banks and joint-stock companies for accomplishing banking activities.
The Central Bank of the United Arab Emirates is the public institution, which is responsible for the regulation of national currency and monetary policy of the United Arab Emirates. The monetary unit of the principalities was the Indian rupee, which produced emissions Reserve Bank of India until 1959. In 1959, the Reserve Bank of India issued a special currency to the principalities – rupee Gulf, which replaced the Indian rupee. Gulf Rupee was likened to the Indian rupee.
After the devaluation in June 1966 of the Indian rupee and the subsequent devaluation of the rupee Gulf by 36.5%, Duchy abandoned the currency. However, the choice of currency was not an issue of great concern: in June 1966, Abu Dhabi introduced the Bahraini Dinar, and the rest of the country – Saudi Arabian riyal. In September 1968, instead of the Saudi riyal, Riyala Qatar was introduced, and Dubai Currency Board unreleased Qatar and Dubai.
After May 19, 1973, the Law No2 on the establishment of the Monetary Board of the United Arab Emirates, according to which the single currency had become principalities AED, was adopted. Also, in December 10, 1980 the Law No10 on the transformation of the Monetary Board of the Central Bank of the United Arab Emirates UAE was adopted.
According to the UAE Law No10 (1980), The Board of Directors oversees the work of the Central Bank; it includes seven members: Chairman of the Board, the deputy head of the governor (they have the name of the minister) and four other members.
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The head of the Union chooses each member after this decision is approved by the Council of Ministers for the period of 4 years. Council members are prohibited from working in any commercial bank as they cannot be active members of the Federal National Council of the UAE, or to be a minister of the Cabinet status. The head office of the bank, which is located in Abu Dhabi, has branches in five cities in the UAE. These are Dubai, Al Ain, Sharjah, Fujairah, Khaimah, Ras Al (The Central Bank of the UAE Board of Directors’Resolution, 2004).
Departments of the Central Bank include the following: Banking Supervision and Examination Department, Banking Operations Department, Treasury Department, Financial Control Department, Administration Affairs Department, Research, and Statistics Department, and Internal Audit Department.
In accordance with Article 5 of the OAU, the Central Bank has the right to regulate the banking and monetary policy, as well as monitor its activity according to government policy, support for economic development and stability of the national currency. Proceeding with this law, the Central Bank has the authority to act as an issuing currency authority. In addition, it is able to stabilize the national currency within the country and abroad, provide for a free conversion into foreign currencies; conduct credit policy to promote the balanced growth of the national economy; organize and control the efficiency of the banking system; provide advice on the financial and monetary matters of the state (World Bank, 2014).
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In addition to having the status of “bank of banks” in the country, the Central Bank is a banker and financial adviser to the government. It has the right to develop and accomplish banking operations in order to improve the state’s economy. According to the law, the competence of the Central Bank includes the regulation of investment banks, providing the license, releasing of financial instruments, and portfolio management.
The Central Bank acts as a financial representative of the State in the International Monetary Fund, the International Bank for Reconstruction and Development and other international and Arab funds and institutions; it administers the cooperation of the state with these organizations.
In accordance with the decision of the Central Bank, financial institutions have the right to lend money and perform other financial transactions; however, it does not allow them to accept deposits. Brokers that have the license have the right to advertise and sell foreign and domestic stocks and financial instruments with their commissions (Union Law No. 1980).
The Law, which relates to the Central Bank, identifies five principal types of the financial institutions of the United Arab Emirates. They are commercial and investment banks, financial institutions, and financial intermediaries. All of them have to get a license from the Central Bank.
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Every bank that wants to conduct its activities in the United Arab Emirates is entitled to receive a license from the Central Bank. In order to provide banking services, they need to be tested according to the criteria such as the purpose of the establishment, the coordinates of the location of the institution, the number of services that will be provided, the number of employees in the financial institution, and safety.
According to the license terms, the Central Bank may grant a license for banking services only after consideration of the application by the financial institution with all necessary documents. The financial institutions may refuse to have a license if does not meet at least one of the following conditions: the limited period, during which the financial institutions should provide all the necessary documents; the applicant must not have been involved in violations of the laws of the state (Emirates NBD, 2011).
Abu Dhabi Commercial Bank (ADCB) is the thriving financial institution, which pursues the consistent policy of innovation since its foundation in 1985. This bank offers a full range of services: banking services to individuals, asset management services, private and corporate customers, commercial organizations, cash transactions, currency exchange, real estate management, credit services, investments, corporate finance management, the provision of programs for strategic investment and project financing, operation management of derivatives and Islamic finance. The number of the retail customers that it serves is more than 600,000, and 50,000 of the corporate clients. The total value of the assets is 207 billion.
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Noor Islamic Bank was created in 2008, but it managed to find its clients and grow considerably in a short period. Noor Islamic Bank is a special bank because it operates in accordance with the rules of Sharia (set of rules derived from the Koran). This means that any fraud, unjust enrichment, illegal income and expenses are prohibited. Financial relations should be based on trust and take into account, first and foremost, the interests of the client. The bank was established to provide services not only to individuals and small and medium-sized enterprises but also large companies and governments of other countries. Noor Islamic Bank offers the manufacture of payment cards, opening accounts, deposit programs; credit programs, asset Management. Therefore, it can be saud that its range of services is not as wide as in the ADCB Bank.
There is one common trait for both the bans: they cannot establish a fixed percentage of loans and deposits. This principle is based on the prohibition in Islam of such thing as “riba” (usury). In addition, these banks are not involved in any activities that are forbidden in Islam(The Banker Journal, 2014).
The differences between the data banks are as follows:
|Abu Dhabi Commercial Bank||Noor Islamic Bank|
|It has 120 branches in the UAE, 3 main offices, 2 branches in India and the main office in London.||It has 67 branches in the UAE, Abu Dhabi, Dubai, Sharjah, as well as foreign representative office in Tunis.|
|The size of the assets is 36.8 billion dollars||The size of assets is 23.3 billion dollars|
|The opening of accounts only in the presence of the client||The ability to open an account on-line|
|Bonuses are not provided||Provision is accrued bonus points for using the services and the products of the bank|
|The lack of investment opportunities in a diversified range of assets||The ability to invest in a diversified range of the assets is available|
The financial sector of the state comprises one of the three largest branches in the region of the Persian Gulf and has faultless reputation. Compared to most European banks, the banks in the UAE stand out favorably due to the low tariffs for services, simplified reporting system, high quality services and loyalty to the customers. Thanks to the policy of the Central Bank, which places high demands on equity, the banks of the UAE belong to the most famous financial institutions in the world.