Dubai's banking sector is being urged to become more transparent in order to take advantage of a predicted upswing in the national and regional economy.
On June 17, the Central Bank of the UAE issued a draft set of guidelines aimed at both encouraging the use of accepted best practices in management and also helping to restore confidence within the sector.
In the introduction to the guidelines, the Central Bank governor, Sultan bin Nasser Al Suweidi, said that if a bank failed it affected the whole economy, thus emphasising the direct relation between banking directors and financial stability.
"Commercial banks are leading contributors to a successful UAE economy and are expected to show the way on high management standards and corporate governance," he said. "Such improvements will be value-adding and will reinforce the international competitiveness of UAE banks."
Among the issues listed in the guidelines was the need to pay more attention to improving disclosure standards and increasing transparency, while ensuring there are credit and risk committees in place.
Echoing Suweidi's comments, the guidelines emphasise that sustainable high performance came from striking a balance between wealth creation and control, and promoting high standards in both.
Based on international regulations, though according to the Central Bank also tailored to suit the UAE's own national and financial environment, the document updates the last set of guidelines given to the local banking industry, issued seven years ago.
In that time, and especially in the past 18 months, there has been a considerable change in Dubai's financial environment, with up to one-third of the emirate's banking assets, and those across the UAE, connected to the property industry.
The sharp downturn in the property sector, which has witnessed a fall in demand, project delays and a rise in loan defaults, has naturally affected Dubai's banks.
According to Georges Makhoul, the head of Morgan Stanley's Middle Eastern and North African operations, the property market should pick up by the end of 2009, also lifting the banking sector.
The credit shortage in Dubai, prompted in part by local banks being wary of extending further loans in an uncertain economic climate while also seeking to consolidate their own holdings, could be ending sooner than predicted.
There are distinct signs that Dubai's economy, and its banking sector, are taking the first steps on the road to recovery, according to Hamad Buamim, the director-general of the Dubai Chamber of Commerce and Industry.
"According to the latest findings and figures, profit rates in the banking sector have only dropped by 4%, while assets increased by 2%," he told a business gathering at the end of May.
Banks in Dubai and the rest of the UAE have been working to reduce their loan-to-deposit ratio. According to the Central Bank, local lenders have raised about $10.6bn in deposits in the first four months of this year, while disbursing around $1bn.
Thus strengthened, a number of leading banks have eased their lending restrictions for real estate sales, freeing up more funds for mortgage loans and raising lending limits. In mid-June, the Dubai Islamic Bank announced it would give loans worth up to 90% of the value of a property for local buyers and 80% for expatriates. Other banks, including local lender Mashreq Bank, have raised their mortgage lending limit to 75% of a property's listed price, well above the 50% some were offering as recently as April.
While the emirate's banks may be getting back into the lending business, some experts believe they will be somewhat more circumspect than in the earlier boom years.
"Banks are lending, finally. But at the end of the day, banks will be wanting to look for the right customers, they will run their checks and balances and give credit not to low-leverage people but to those that can substantiate their payments in the coming years," Muhammad Faisal Iqbal, the head of secured lending business for Barclays Bank in the UAE, told the local media in an interview on June 17.
It is this more calculated approach to lending that the UAE Central Bank is hoping to foster, and an approach that could see a rejuvenated banking sector emerge in Dubai.