With 50 banks and 347 bank branches for its 1 million residents, this is said to be the most overbanked country in the world.
Most of these banks have been established since oil revenue began gushing through what little there was of an economy some 10 years ago. Banks were sometimes set up by entrepreneurs primarily interested in raising capital for their other businesses. There was little regulation and less enforcement.
Now the relatively new U.A.E. Central Bank is pushing for a stronger, more consolidated, and more regulated banking sector. Abdul Malik Yousef al-Hamr, Central Bank governor, sees the bank's task as no less than ''to establish sound banking in the U.A.E.''
One move being hailed by Western bankers as a step in the right direction is the setting up of the Credit Risks Bureau to provide banks with financial information about potential customers. Previously banks have granted loans with only limited information. ''Some of the customers don't even supply a balance sheet,'' said one banker.
Another move by the Central Bank has been its moratorium on the opening of new foreign banks or foreign-bank branches. It also restricts foreign banks to only eight branches. Of the 28 foreign banks in the U.A.E., nine are affected by this regulation, and up to 83 bank branches face closure before the end of 1983.
The only other option for the affected banks is to become locally owned, with government permission. Only one of the affected banks, Bank of Credit and Commerce International (BCCI), has gone this route successfully.
Countries such as Saudi Arabia require ownership to be roughly 60 percent local and 40 foreign, but the U.A.E. government has insisted that a considerably higher percentage of shares be held locally.
Nonetheless, the switch to local ownership will permit BCCI to keep all its 28 branches open and to expand if it wishes.
The BCCI decision was said to be a ''very, very special case.''
Sheikh Zayid ibn Sultan al-Nuhayan, U.A.E. President, and high-ranking members of the Kuwaiti and Saudi ruling families are reported to be among BCCI shareholders.
The Central Bank decision to restrict foreign banks was made in part to help reduce the number of bank branches in the U.A.E., while strengthening the position of some competing local banks. The Central Bank is also encouraging weak local banks to merge with stronger ones.
The limitations on the foreign banks are seen by some Western bankers as a move toward an eventual government position that all banks be locally owned. Saudi Arabia has such a regulation. But officials here are being cautious not to follow the Saudis too closely, at least not until the local banking community becomes more sophisticated.
''You cut yourself off from an independent window to the world if you don't have any foreign institutions operating in your country,'' says a Western banker. He adds that foreign banks also provide training opportunities and introduce up-to-date technology in countries that might not get it otherwise.
But on the other side of this hotly debated issue, it is argued that citizens of the emirates, not foreigners, should be reaping the benefits of the local economy.
Bankers do not anticipate that the Central Bank's restrictions on foreign operations will affect American and European banks, which focus primarily on corporate-level financing. But the restrictions will affect Indian and Pakistani banks, which rely heavily on local deposits.