Veema Banking Company’s Investment in the UAE

Executive summary

The UAE global business world has been growing, and the economy of the UAE has been improving for the past few years steadily. The stability of the UAE economy has been on the increase, especially due to the capital resources available at the disposal of the UAE. Setting up a business in the UAE requires that a prospective business gets licensing from the UAE, and the Emirate, where it seeks to establish its operations. The UAE banking sector is highly disjointed, with a total of 46 banks, these including local and foreign banks, almost in equal number, according to the 2007-2008 statistics. From an international as well as a local point of view, the banking sector has been under threat, especially due to the international markets crisis. Despite this, there is great hope for UAE banks, considering the stability of the UAE economy, and the recent inflow of foreign investors. However, setting up a business in the UAE, for the Chinese investor, will pose both cultural and institutional challenges, these including attracting the right staff, and retaining the desired staff base.

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This report is presented to the Chief Executive Officer of the Veemah Banking Company Limited, China. The report is drawn to present all the information that Veemah Baking needs to have, in their effort to invest in the highly lucrative Banking industry in the United Arab Emirates. The choice to invest in the UAE banking sector is a rewarding choice, and the rewards to be reaped will attest to the reality that the Banking sector in the UAE is highly tempting. However, through this report, a highlight of the challenges likely to be met by Veema banking, from investing in the UAE Banking sector, will also be presented, and the maneuvers to avoid such challenges explained in details, as we endeavor to make the investment experience of our associate investors, as rewarding and less demanding as possible. Through this report, you will also receive an analysis of the general business environment that you will meet, during the employment of your investment endeavors at the UAE. The purpose of the report is to present all the information you may need to know, regarding the UAE Banking sector, from the perspective of a highly knowledgeable and experienced banking industry affiliate in the UAE (Shihab 1990; Kapur 2010).

Background and discussion

General information on the UAE business world

UAE’s financial standing and industry stability

As the CEO of the Veemah Banking Company Limited, I would like to take you through a brief overview, of exactly what to expect from investing in the banking sector, in the UAE. From the information, you will get a succinct picture of just why you need not hesitate when making the choice to invest in the banking sector in the UAE. The Banking sector, as seen from the perspective of financial analysts and economic experts, is looking good, portraying figures that are of significant attraction to current investors and potential investors alike. The driver of the UAE financial industry is the high endowment of the UAE, in terms of the natural resources that are lying untouched, waiting to fetch the investors and the UAE people huge wealth (UNDP 1999; Boland 2009).

Analysis of the UAE business environment

Back to analyzing the UAE’s economical standing, with regard to investing in banking services, it should be noted that the UAE economy is booming, and the opportunities to invest and make promising returns are limitless (Hoggson 1926). The UAE environment places no restrictions on capital repatriation or profit transfers; the duties imposed on imports are low, in the range of 5% for all commodities; no duties imposed on the commodities traded for use at the free zones; the cost of labor is highly competitive; personal taxes and corporate taxes are not levied, following the 44 double taxation treaties and the 32 bilateral enterprising agreements, that the UAE is an active part of (MoP 1987; MoP 1993; MoP 1998; MoP 1999).

Setting up a business in the UAE

As an aspiring investor, it is of importance to understand that all businesses, whether professional, industrial, service, or trading, must be accorded legally prescribed licensing before business operations are started within the UAE territory. The licensing formalities and procedures that you are likely to go through, vary from one emirate region to the other, but the information on all the formalities that may be expected of you, is available at the chambers of commerce portal (Clark 1984; Goldthwaite 1995).

An analysis of the United Arab Emirates banking sector

In summary, the UAE has a highly disjointed banking sector, with a total of 46 foreign and domestic banks operating within the UAE territory. The UAE banking sector is considerably protected, though it is statistically proven that foreign banks are taking the lion’s share, by becoming increasingly active within the economy. The UAE baking sector is also reenergizing to meet the challenges facing the baking sector across the world, by adopting the Basel II banking principles. From a cross-evaluative view of the UAE banking sector, it is evident that there are 5 major banks dominating the UAE Banking sector, though the leading ten banks are considerably doing well financially. The UAE banking sector is fully managed by the UAE Central Bank, which is a characteristic mover and positive factor in determining the country’s globalization efforts and growth. This is the case, as from the statistics collected over the past years; the UAE banking sector has been consistently growing towards meeting the dynamics of global competition (Moukaha 2011, pp. 2-17).

The Domestic and Foreign Banks operating in UAE (2006).

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Domestic Banks Operating in the UAE Foreign Banks Operating in the UAE
Abu Dhabi Islamic Bank (ADIB) Al Ahli Bank of Kuwait K.S.C.
Abu Dhabi Commercial Bank (ADCB) ABN-Amro Bank N.V.
Arab Bank to Invest. & Foreign Trade Arab African International Bank
Bank of Sharjah (BOS) Arab Bank plc.
Commercial Bank International (CBI) Bank of Baroda
Commercial Bank of Dubai (CBD) Bank Saderat Iran
Dubai Bank Bank Melli Iran
Dubai Islamic Bank (DIB) Banque Banorabe
Emirates Bank International (EBI) Barclays Bank Plc.
First Gulf Bank (FGB) Banque du Caire
Invest Bank Credit Agricole Indosuez
Mashreq Bank (MASHREQ) BLC (France) S.A.
Middle East Bank BNP Paribas
National Bank of Abu Dhabi (NBAD) HSBC Bank Middle East (HSBC)
National Bank of Dubai (NBD) Citibank N.A.
National Bank of Fujairah El-Nilein Bank
National Bank of Ras Al Khaimah Habib Bank A.G.Zurich
National Bank of Sharjah (NBOS) Habib Bank Limited
National Bank of Umm Al Qaiwain Janata Bank
Union National Bank (UNB) Lloyds TSB Bank Plc
United Arab Bank National Bank of Bahrain
National Bank of Osman S.A.O.H
Rafidain Bank
Standard chartered Bank (Stan Chart)
United Bank Limited

Representative offices of the foreign banks operating within UAE (2006).

Representative offices of the foreign banks
American Express Bank Ltd. Kotak Mahindra International Ltd.
Bank Brussels Lambert Kuwait Interests for Financial Investments (KSC)
Bank Muscat (S.A.O.G) Man Investment Ltd.
Bank of America – National Association Merrill Lynch Bank (Suisse) S.A
Bank of Bahrain and Kuwait (B.S.C) Natexis Banque – Populaires
Bank of Beirut SAL Nationwide International Ltd.
ICICI Bank Ltd. Philippine National Bank
Citi Group Global Markets Royal Bank of Canada
Clearstream Banking S.A. Societe Generale Bank
Coutts & Co. Standard Bank London Ltd
Credit Suisse State Street Bank and Trust Company
Deutsche Bank AG Towry Law (Asia) HK Ltd
Dresdner Bank A.G. UBS A.G.
Fidelity Investments International Union Bancaire Privee (CBI-TDB)
HDFC Bank Ltd. Union de Banques Arabes et Francaises(UBAF)
HSBC Bank International Ltd. Unit Trust Of India
IndusInd Bank Ltd. Wachovia Bank National Association
Korea Exchange Bank West LB A.G.

In demonstrating the potential of the UAE banking sector, the analysis of the profit records of the year 2004 shows that all the banks operating within the UAE territory realized profit. The central bank of UAE also made it an obligation that each of the banks maintains a 10% capital/ assets ratio, a condition that almost all the banks exceeded without any problem, except only three of the top banks. From the records, it is also explicated that ROA and ROE are characteristically higher among non-Islamic banks, which may be attributed to the religious restrictions of Islam run banks.

Table showing the financial profile of the ten UAE Banks (2004).

UAE Banks Mid-East nk Capital
($ mil.)
($ mil.)
Asset (%)
($ mil.)
Emirates Bank International (EBI) 9 1,585 10,371 15.3 281 17.7 2.7
National Bank of Dubai (NBD) 10 1,482 10,972 13.5 253 17.1 2.3
National Bank of Abu Dhabi (NBAD) 14 1,413 15,349 9.2 310 22 2.0
Abu Dhabi Commercial Bank (ADCB) 15 1,352 10,461 13.0 218 16.1 2.1
Mashreq Bank (MASHREQ) 18 1,244 8,699 14.3 226 18.1 2.6
Dubai Islamic Bank (DIB) 28 814 8,342 9.7 126 15.4 1.5
Union National Bank (UNB) 40 604 6,570 9.2 123 20.3 1.8
Commercial Bank of Dubai (CBD) 41 564 2,880 19.5 96 17.0 3.3
First Gulf Bank (FGB) 48 484 3,484 13.9 67 13.8 1.9
Abu Dhabi Islamic Bank (ADIB) 55 410 3,457 11.8 33 8.0 0.9

From an analysis of the available data, it was also understood that the UAE retail banking sector, is rapidly growing, which may be attributed to the continuously increasing population of expatriates visiting the UAE. From the information available, it was clear regarding the areas that newcomers within the UAE market could capitalize on, these including ATM networks, internet banking, foreign and local money transfer across electronic platforms, and the advancement of personal loans, as UAE banks are characteristic with showing a preference for corporate clients, as they perceive them as more lucrative and less risky (Behrman & Birdsall 1983; Shihab 1996).

From the records, the tactics that can be used to ensure that a new entrant bank realizes fast growth, as observed from the records of the fast-growing banks, the areas to be given special attention include pursuing the realization of a 57-140% balance sheet amount development; investing in high earnings growth ratios, these ranging between 90 and 137%; and the increment of capitalization to deposit ratio figures, of between 100-165% (Schultz 1961).

Domestic bank’s growth comparison.

Mkt. Cap* (AED mil) Trade Val. (AED mil) Asset Growth Loan Growth Deposit Growth Loan / Deposit
Fast Growth
First Gulf Bank 6,133 113 140% 256% 119% 100%
Emirates Bank 26,749 47 57% 91% 46.3% 137%
Moderate growth
National Bank of Abu Dhabi 18,258 44 54% 70% 67.1% 96%
Union National Bank 11,557 61 39% 81% 26.9% 104%
Mashreqbank 11,390 4 39% 62% 31.9% 80%
Commercial Bank of Dubai 7,312 9 28% 52% 41.4% 96%
Slow growth
Abu Dhabi Commercial Bank 15,638 51 23% 39% 30.2% 99%
National Bank of Dubai 15,648 95 13% 117% 11% 56%
Dubai Islamic Bank 9,520 238 83% 84% 85.0% 63%
Abu Dhabi Islamic Bank 4,075 146 77% 209% 96.3% 81%

Advice on the general business context

From an international evaluation of the factors affecting or promoting the practice of banking in the world, especially after the global crisis, the researchers have presented the data showing that banks will have to restructure their regulations; the way they carry out business as well as the way they act as institutions. This is the case, as according to the study, there will be a fundamental re-regulation of banking, especially in the core areas of ownership structures, which are shifting towards heaver state engagement, and the need for intense investor evaluation.

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Equity rations will also have to be substantially increased, and the results from these moves will be that the profitability and the growth of the banking sector as a bracketed field will be reduced, especially in the long run. The statistics further indicated that leaner years lie ahead for banks, especially those operating in the U.S. This is the case, as the Americans have shown financial depression, which is depicted in their weakening loan growth, diminished importance of trading income and modern capital markets, as well as increasing loan losses. The study further indicated that transaction volumes are likely to decrease; and the incidences of international mergers in the area of banking decrease. The acutely affected areas, however, are America and Europe, where the internalization of banks is likely to slow in an acute manner, as the changing conditions will favor domestic banking as opposed to international financial dealings (Shihab 1999).

Coming to the focal area of this report, at UAE, the situation could never get better, especially with the sophisticated cyberbanking skills and maneuvers like e-banking, as witnessed from the cyber city of Dubai, as well as the other highly developed or developing business centers. In general, banking in the UAE has been on the positive scale of change, showing that investment banking is on the increase, and indicating that the banking sector is moving ahead in a healthy manner, a situation that will continue for the foreseeable future, at least ten years from now. At the UAE international business center, banking has also been moving forward, towards the next level, where banking sophistication is improving on a daily basis. This is mainly the case, as the UAE has seen the execution of large financial dealings, especially those of petrochemicals, which are executed, concluded, sealed, and transacted at the regional market, a situation that calls for banking that suits the UAE region (Chatterji 1994; Mishler & Cole 1995).

Advice on the entry model into the UAE banking sector

The growth of the UAE market has offered an investment target region, which is amongst the most attractive and the most liberal in the Arab world, as well as on the international map. UAE’s region’s economic activities are in the control of the emirate and the federal government, which regulate all the business operations in this region. However, across the UAE region, there are primarily three categories of operational licensing, as enumerated below:

  • Commercial licensing, which covers all kinds of trading activities.
  • Professional licensing, which covers the practicing of professional services, crafts-work, artisan-services and other classes of service
  • The third class of licensing: industrial licensing, which covers the legitimacy of those intending to set up industrial or manufacturing operations in the UAE.

In the case of Veemah Banking, the best entry mode is first, applying for the licensing category of commercial dealings and professional licensing consecutively. This is the case, as this license provision will cover any intended or unintended adjustments in the trading outline of the bank, to cover practices that are not addressed under the professional licensing bracket. In the area of the model of business to be registered, Veemah Banking can enter the UAE market as a limited liability company entity. This class of business setup is suitable for the organizations that intend to develop long-lasting relationships with the Economic fabric and the local market of the UAE business center.

The requirements for the setup of this business model in the UAE will require the entry of at least two representatives of the company, and a maximum of 50 representatives, whose liability is restricted to their shareholding in the capital of the business. The minimum monetary requirements will be EUR 2 Million for the option of taking the line of a ‘public company,” and EUR 0.40 Million for the choice to take the line of a “private shareholding company.” In the area of foreign equity participation, the investors from Veemah Baking will not be able to exceed 49% company participation, but the division of the profits and the losses that may result may be prescribed otherwise. Management responsibility of this company, which is a limited liability one, will be given to a foreign partner, a local partner, or a third party if the owners come into an agreement to give the management to a third party (Anand & Ravallion 1993; Macesich 2000).

Way forward in dealing with cultural and institutional challenges; opportunities and the challenges between China and the UAE

The institutional and cultural challenges that Veemah Banking should expect include attracting, retaining, and developing the desired employees; quality and the standardization of services; cost and complexity of licensing and regulatory requirements; and accessing insurance services. In dealing with these challenge areas, Veemah Banking will pursue the legality of the issues at hand and reach a balance in the issues involving cultural conflict, as the success of the company might as well be dictated by the level of integration into the UAE social fabric (Carnoy 1967; De Albuquerque 1855).

The institutional and cultural opportunities that Veemah Banking is likely to enjoy include enjoying the competitive edge, as a result of moving from being a specialty banking actor; the demand for the varieties of their innovative banking will grow; the government is fostering foreign investments; the business relationships developed with the UAE market operators. In taking advantage of these opportunity areas, care should be exercised, to ensure that the company remains legally supported and that it does not put its reputation and social standing at risk (Mushkin 1962; Statistics Department 2001).

Recommendations and conclusion

The use of marketing models, to draw the conclusions, on whether the Veema Banking Company should proceed with the investment

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Porter’s five forces evaluation

The rivalry between the existing sellers in the market

The number of banks operating in the UAE currently, is 52: 24 Local and 28 Foreign. The profit increase expectation for the year 2012 is between 10 and 15%. This clearly shows that the potential of the UAE banking sector is not fully exhausted.

The power exerted by the customers in the market

Following the non-risky nature of the banking sector services and the Central Bank deposits, the power exerted by customers on the UAE banking sector is low, as credit demands are not high. Also, the UAE banking sector is not high in the area of credit demands, from the customer base.

The impact of the suppliers on the sellers

The major supplier encountered by banks in the UAE market, is the Central Bank of the UAE, which has voiced that commercial banks are safe, and will not be affected by the recent turmoil in the international market. The central bank has also increased its bank lending level from 2.2% to 3.5%, which shows that investing in this market is safe.

The potential threat of new sellers entering the market

Considering the figures of the profitability between the years 2007 and 2008 for the Banking and financial sector, which were as follows; 2008 (22,838.31) and 2007 (23,354.50), which marks a profitability drop of – 2.21%, many entrants will shy away from entering the UAE banking sector until the figures look better.

The threat of substitute products becoming available in the market

The threat of a substitute, more innovative banking coming into the UAE market is low, considering that the Veema bank will enter at full swing e-banking capacity, which, only 18 out of the 52 banks have fully established and operated from in the UAE market. Therefore, the threat of substitution is minimal. Based on these facts, it is conclusive that Veemah Banking Company is in a good position while making their entry into the UAE banking sector.

SWOT Analysis of the UAE banking sector

  • The strengths to be benefited from the UAE banking sector include the low taxes levied to foreign banks, the few formalities to be met before entering the market; the e-banking platform available, the strengthening economy, and the high potential of the banking sector.
  • The weaknesses of the UAE banking sector include the decreased profitability, after the year 2007 international markets crisis
  • The opportunities to be capitalized on include fully operating on the e-banking platform, which only 18 of the 52 banks in the UAE have fully utilized. The e-banking platform and the advancing of credit to small-scale borrowers should form the bank’s entry competitive advantage – as these are areas not fully offered by UAE banks.
  • The threats to be encountered include the possibility of not realizing a profit in the first few years of operation, especially due to the international market crisis facing UAE banks.

From the provided SWOT analysis of the UAE banking sector, it is clear that investing there will not be easy, though the benefits to be accumulated are more than the costs to be incurred. Therefore, investing in the UAE banking sector is fully beneficial and logical.

After analyzing the potential of the UAE market, in terms of economic growth, favorability, and investment friendliness, there is no single reason as to why Veemah Banking should not invest in the UAE. Further, paying special regard to the lucrative nature of the banking sector available in the UAE, which is mainly the case, due to the highly developing nature of the UAE economy, the Veemah Banking Company will only need to plan their venture, to ensure that they will deliver innovative banking services and products. From establishing its approach to the delivery of excellent banking, which is custom-made to meet the needs of the UAE people, the bank will gain an advantage in the market and develop a competitive advantage. From investing in the UAE, the Veema Company will also benefit from the range of opportunities discussed, including the support of the government towards the fostering of the UAE economy (MoFI 1992).


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