The UAE Central Bank prohibits lending an amount greater than seven percent of a bank's capital base to any single customer. The bank defines a customer as an individual, a company, or a group of companies under common ownership, and capital base as local capital. Foreign banks with branches in the UAE are not permitted to calculate loans as a percentage of their global capital (which may however be used to calculate the capital adequacy ratio). In a revision to the rule in 1993, the Central Bank decided to exclude non-funded exposures, such as letters of credit and guarantees from the requirement. The Central Bank has also announced implementation of internationally recognized and accepted accounting principles, in the form of the International Accounting Standard (IAS) number 30 on disclosure.
Local banks finance most non-oil investment in the UAE. Most of the manufacturing sector operates with higher levels of debt than prescribed by the 60:40 debt to equity ratio, generally the norm for this sector. Debt is almost entirely made up of bank borrowings. Some three-fourths of gross fixed capital formation in manufacturing is directly or indirectly financed by the banking system.
The trade and building sectors receive a major share of bank loans. Banks lend to the services, trade, and building sectors due to the scarcity of major investment scope in other productive sectors. The oil sector is the province of the government.
Islamic banking continues to grow at a rapid pace because of its value-orientated culture that enables it to draw finances from both Muslims and non-Muslims alike. Abu Dhabi- and Dubai-based Islamic banks are taking aggressive moves that help them notch up growth rates that match or exceed the best in the local banking sector. In addition to the traditional and interactive consumer oriented services and project financing, UAE Islamic banks are involved in real estate development, home and car financing, and service leasing finance, a new tool that includes financing services such as education, health, travel and tourism.