Large acquisitions by UAE banks in a new way

Today the world is trying to solve various problems arising from the influence of COVID-19. In this regard, governments and financial regulators from different countries are making efforts to mitigate the effects of the pandemic on the economy and financial sector. Below is an overview of the new rules for UAE banks that are prepared and implemented by financial regulators in this country.

This article will be useful for entrepreneurs planning to obtain a license to provide banking services in the UAE, and for whom it is important to be aware of the latest changes in legislation. After reviewing the material, we also recommend ordering advice on the regulation of the financial services market in the UAE for a more detailed understanding of the changes taking place there.

Recent Changes in the UAE banking sector 

Local financial institutions are state-owned joint-stock companies. They must obtain a banking license in the UAE. Branches and subsidiaries of foreign banks must be licensed in accordance with the requirements of the Central Bank of the United Arab Emirates.

At the moment, there is consolidation in the financial services market, many large mergers and acquisitions. Many factors contributed to this, including lower oil prices, a potentially vulnerable real estate sector, and the undoubtedly negative impact of COVID-19 on the global economy. If the pandemic continues, bank consolidation will intensify even further.

By the way, if you need expert advice on potential risks in the UAE banking sector related to Covid-19, request a meeting with our contact person listed on the website.

New in major acquisitions

At the beginning of the year, the UAE Central Bank announced new rules for large purchases. The document talks about tightening oversight of major acquisitions by banks in the UAE to enhance bank resilience and help better protect retail customers. A “major acquisition” should be understood to mean an acquisition or investment when the total amount of acquired capital exceeds 5% of the total regulatory capital of the bank.

Although the Banking Act requires financial institutions to obtain approval from the Central Bank for mergers and acquisitions in the United Arab Emirates, the new Rules establish even more targeted obligations for such transactions for banks.

Here are just a few excerpts from the main provisions of the new banking rules:

• Banks should not acquire any institution or transfer their obligations to another person without the prior permission of the Central Bank, which they undertake to receive before the completion of the transaction.
• Banks should not own shares (and convertible debts) in companies that exceed the limit of 10% of their total regulatory capital.
• Large acquisitions by UAE banks outside the state are subject to enhanced supervision

The new rules apply without exception to all banks licensed for financial transactions in the UAE, including subsidiaries and international branches.

Meanwhile, the employees of our company conduct consultations for their clients on the regulatory policy of the Central Bank of the UAE. We carefully monitor all changes and are ready to provide customers with the most relevant information with explanations.

Final word

The widespread application of the new Rules means that it may not be immediately clear which transactions will be classified as “Large acquisitions”. Nevertheless, the new Rules establish an increased level of requirements that should be taken into account at the early stages of considering M&A transactions, and this is certainly understandable to everyone in the banking services market in the Emirates.

If you are interested in registering a bank in the UAE, contact the competent IQ Decision UK specialists. Our experienced staff will hold consultations on the regulation of the market for banking services in the United Arab Emirates.