Why so many banks continue to exist in the UAE | The National

Why so many banks continue to exist in the UAE | The National:

"For some time, and as mentioned in previous articles of mine, I have wondered how there could be more than 50 banks in the UAE, about half of which are full operating banks, given a population of circa 8 million – and more than half of whom are blue collar workers not in need of banking services. Basic economic theory would suggest that competition would lead to mergers or banks withdrawing from the market until the supply of banking services dropped to a level commensurate with the level of demand for banking services.

When a theory does not match the facts, a good place to start looking for insights into what is going on is to check each of the assumptions of the theory. The main assumption in questioning the large number of banks relative to the population is that free-market capitalism would whittle down the number of banks through competition to a number more consistent with the size and demographics of the population.

My primary suspicion as to why the UAE has not had a great number of bank mergers or withdrawals from the market was that government business more than made up for the relatively small population. As I keep a close eye on how the banks are faring in the current economic contraction, which leads to a reduction in government business, I am reminded that in previous contractions, such as 2008-09 or 1998-99, there did not seem to be any pressure on banks to behave in a competitive manner, at least not wholly so."



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