Islamic banks account for 19% of UAE bank assets

Dubai: Islamic banks experienced 5 percent growth in assets in 2020 with a compound annual growth rate of 5.6 percent over the past five years, according to data from the Central Bank of UAE (CBUAE).

Full-fledged Islamic banks ‘assets in the UAE during 2020 were about 19 percent of total banking system assets, while Islamic windows’ [Islamic financial services offered by conventional banks] the assets decreased by 2.4 percent and accounted for about 5 percent of the total banking system assets.

The UAE has an established Islamic financial sector, consisting of full-fledged Islamic banks, Islamic windows and Islamic finance companies with a total asset of Dh782.0 billion.

There are currently eight full-fledged local Islamic banks and two full-fledged foreign Islamic banks licensed in the UAE. In addition, 17 conventional banks have installed Islamic windows with an asset size of approximately Dh166.2 billion in 2020. In addition, there are 11 Islamic finance firms in the UAE that account for approximately 55 percent (Dh17,6 billion) of total assets. of the sector of finance enterprises in 2020.

The full-fledged Islamic banks’ assets of the UAE consist mainly of financing, which accounts for about 65 percent of the total assets, followed by investments in financial assets of about 11 percent, while the remaining balances with the central banks, interbank financing and other assets .

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Financing portfolio

UAE Islamic banks’ financing portfolio consists largely of private corporate and retail financing. Funding extended to the government and the GREs has become prominent with the share of total funding increasing to 22 percent in 2020, while the funding of the Islamic banks of SMEs has remained relatively small as part of the total portfolio .

The composition of the retail portfolio is mainly in retail bonds, which account for 42 percent of the total retail portfolio, followed by personal consumer financing at 41 percent. In terms of financing the economic sector, exposure to construction and real estate accounted for about 21 per cent of the total financing portfolio, while the trade and services sector accounted for 16 per cent.

Funding and liquidity

Islamic banks in the UAE are largely financed domestically, with deposits from residents accounting for about 93 percent of total deposits. Deposits accounted for 80 percent of total liabilities, while capital market issuance accounted for about 6 percent.

Retail deposits accounted for the largest share of total deposits with 39 percent, private enterprises with 24 percent, followed by deposits from the government and the GRE. Although about 6 percent of total liabilities were responsible, sukuk issues became prominent during 2020, which is reflected in strong growth in capital market financing.

Most sukuk issues were in foreign currency, representing 77 percent, while sukuk in dirhams accounted for only 23 percent of total issues.

In recent years, the issuance of sukuk has been particularly on long-term maturity periods, which improves the overall financial stability. At the end of 2020, sukuk issuance in the medium term (1-5 years) was about 46 percent of the total portfolio, while the issuance of more than five years, which began in 2020, accounted for 15 percent of the portfolio.