The onset of the global financial crisis in 2008 has forced a radical overhaul of banking regulation across the globe. While the United Arab Emirates banking sector has fared better than most, the events of the past few years have exposed inherent weaknesses in the way it had previously been regulated.
The weaknesses were particularly apparent in the retail banking sector. Given their high exposure to real estate – loan portfolios averaged 30% across the country – UAE banks saw a spike in non-performing loans (NPLs) after the bursting of the real estate bubble in late 2008, which led property prices to plummet by as much as 50%. Prior to 2008, many banks used capital inflows that were coming into the region for the anticipated Gulf Co-operation Council's (GCC's) currency revaluation to fund their asset growth, which averaged 35% across the sector.
