Commercial banks of United Arab Emirates

Commercial banks in the United Arab Emirates are organizations that have a license to conduct commercial banking operations in accordance with the law or government order and are joint-stock companies. An exception to this rule are the branches of foreign banks operating in the UAE.

Commercial banks in the UAE are divided into two categories: local joint-stock banks and branches of foreign banks. Historically, national and foreign banks already existed in the UAE before the formation in 1973 of the Currency Committee of the UAE and, therefore, before the creation of the Central Bank of the UAE. In such circumstances, the number of banks and their branches in the UAE grew very quickly and in a clear disproportion with the capabilities of the local market. This prompted the monetary authorities to restrain the issuance of licenses to new banks at that stage and to pursue a policy of reducing the number of branches of foreign banks to a maximum of eight offices.

As of January 1, 2012, 23 national banks (including five Islamic banks) and 28 branches of foreign banks were registered and worked in the UAE.
The main criterion for classifying an organization as commercial banks is that commercial banks usually generate resources for issuing loans and advances by attracting deposits (on demand (or on-call), with prior notification and urgent) from the public and corporate clients, and by placing on Market of debt instruments (bills of exchange, bonds, certificates of deposit). For commercial banks, operations on issue and collection of checks, organization of placement of state and private bonds, operations with foreign currencies and precious metals and other banking operations permitted by law or carried out by virtue of normal banking practice are also characteristic.

The Board of Directors of the Central Bank of the UAE determines the directions and volumes of activity of commercial banks with a limited license and, if necessary, stipulates cases of non-distribution of provisions of the legislation on commercial banks.

The paid capital of a national commercial bank in the UAE should be at least 40 million dirhams (about 10.9 million dollars). The branches of foreign banks are required to place in the Central Bank of the UAE the equivalent of this amount in freely convertible currency as capital funds for the conduct of banking activities. The requirements for the minimum permissible amount of capital of a commercial bank can be reviewed on the proposal of the Board of Directors of the Central Bank of the UAE, approved by the Council of Ministers. The government order is subject to publication in the Official Gazette (The Official Gazette). In case of a decrease in the amount of capital below the statutory level, the Executive Committee of the Central Bank of the UAE determines the amount of the missing funds and appoints the bank the time to replenish the capital to the required size. This period can not exceed one year. The Executive Committee has the exclusive right to resolve such issues.

When deciding whether to grant bank licenses to commercial banks, the Central Bank controls the availability in their charters of provisions for the annual deposit of 10% of net profit as a special reserve until the amount of the reserve reaches 50% of paid-up capital or the equivalent in a freely convertible currency placed In the Central Bank of the UAE by the offices of foreign banks.
A banking license is a prerequisite for starting a commercial bank. It is issued by decision of the Chairman of the Board of Directors of the Central Bank of the United Arab Emirates or authorized by him with the consent of the Board of Directors of the person with the publication of relevant information in the Official Gazette and the registration of the licensed bank in the registry maintained by the Central Bank of the UAE. In case of refusal to issue a license, notification of this is sent to the applicant bank within 15 days from the date of the decision to refuse.

The Board of Directors of the Central Bank of the UAE determines the mandatory procedure for applying to banks for the issuance of a license, the list of documents and information to be submitted, and the rules for opening branches by banks (opening new branches in the UAE or abroad, transferring them to other places, closing).

Any changes in the statutes of banks come into force from the date of their registration in the register on the basis of the decision of the Governor of the Central Bank of the UAE. Rejected requests for registration of amendments to the charters can be appealed to the Board of Directors of the Central Bank of the UAE, whose decision is final.

Termination of operations by a commercial bank (including in connection with a merger with another bank) is allowed only with the permission of the chairman of the board of directors or authorized by him with the consent of the board of directors. The authorization can not be issued until the UAE Central Bank has ascertained that the applicant has fulfilled all of its obligations to customers and creditors or settled them in a form acceptable to the Central Bank of the United Arab Emirates.

The exception of a commercial bank from the register is possible in the following cases:

• At the request of a commercial bank;
• If the bank has not commenced activity within a year from the date of notification of registration;
• If the bank terminated operations for more than a year;
• If the bank is declared bankrupt;
• In case of a merger with another bank;
• In case of serious deterioration of liquidity and creditworthiness of the bank;
• In case of gross violations by the bank of laws, by-laws, instructions, directives and instructions governing banking activities in the country.

The exclusion of a commercial bank from the register is authorized by the chairman of the board of directors or authorized by him with the consent of the board of directors. The decision to exclude a bank from the register takes effect either from the day of its publication in the Official Gazette or from the day directly indicated in the decision. At the same time, the banking license is automatically withdrawn from the day the decision to exclude the name of the bank from the register enters into force.

The exclusion of the name of the bank from the register makes its liquidation mandatory, except for the case of the bank filing an application to exclude it from the register. The liquidation is carried out in accordance with the current legislation and instructions contained in the decision to exclude a bank from the register.

The general rule is to post an announcement about the liquidation of a commercial bank in the Official Gazette and at least two daily newspapers at the location of the bank's legal address. The announcement should specify a grace period for the acceptance by clients and creditors of measures to exercise their rights, the name of the liquidator authorized to make payments on outstanding deposits, as well as other transactions that may occur after the closure of the bank and for which the customers were not previously notified No suggestions.

In case of liquidation of a bank, in connection with the deletion of its name from the bank register, the chairman of the board of directors or his authorized person in his decision to exclude from the register may specify the closing date of the bank and the name of the organization entrusted with the completion of transactions not settled as of the closing date. The Central Bank of the UAE oversees the operations of the bank in the process of liquidation, until the final closure of its offices.
Regarding the types of transactions carried out by commercial banks of the UAE, it should be noted that they are similar to those of commercial banks of other countries of the world and the region and were considered by us, in particular, in the article on the banking system of the State of Qatar. Here we briefly dwell on legislative restrictions in the field of certain transactions by commercial banks of the UAE.

Limitations for commercial banks

In particular, commercial banks are prohibited from engaging in their own activities related to the production and (or) purchase and sale of goods. The exception is the receipt of goods in repayment of receivables of counterparties to the bank. However, the property received in this manner is prescribed to be implemented within the terms determined by the manager of a commercial bank.

The right of commercial banks to acquire on their own behalf (take on their balance) real estate that is not fixed assets (office buildings and premises, apartment houses for personnel) or property transferred by the debtor in payment of their debts to the bank is also limited. Real estate received in debt offset, as a rule, should be realized within three years from the date of acquisition, however the period of sale can be extended by the manager of a commercial bank.

Commercial banks are prohibited from holding or trading their shares, except in the case of receiving them in payment of a debt. In this case, they are subject to sale within two years from the date of their acquisition.

Commercial banks can not purchase shares or bonds of private trading companies in amounts exceeding 25% of the bank's own funds, except for the case when they are purchased for debt repayment. In this case, excess securities must be sold within two years from the date of their acquisition. This restriction does not apply to the acquisition by commercial banks of shares and bonds issued or guaranteed by the federal government or state organizations.

A separate group of restrictions are the limits of lending to executive personnel of commercial banks, individual customers and facilities:

• Loans and advances to members of the boards of directors, directors of departments and other management personnel within the balances on their current accounts with the bank may be issued only in accordance with a preliminary approved annual license-estimate;
• Banks have no right to issue loans to their clients to secure their shares in the bank's capital;
• The total amount of loans and credits granted for the construction of commercial or residential real estate can not exceed 20% of the total amount of deposits. The exception is made only for banks specializing in the provision of mortgage loans in accordance with a special license of the Central Bank of the UAE;
• Without prior permission from the Central Bank of the UAE, commercial banks are not allowed to issue traveler's checks.