The drive by the UAE’s retail banks to preserve profit margins is best illustrated by the fact that the credit cards they offer carry interest rates that are among the highest in the world. It is more than double the average rate in the US.  

With 52 banks serving a population of around 4.5 million, the UAE banks have increased their rates in a desperate attempt to offset losses from loan defaults.

Unlike the 2002-07 boom years when growth was effortlessly fuelled by the rapid influx of expatriates, today banks’ are struggling to find new business.

This has resulted in the customer becoming more important as banks realise that the one-size fits all approach is no longer the order of the day. Banks are also being far more targeted in their underwriting with a greater emphasis on building relationships with more affluent customers from whom potential revenues can be much higher.

For the time being, retail defaults have largely slowed as job losses have moderated across most sectors. 

However, fears remain over the precarious state of the real-estate market. Further downward trends could lead to a new wave of redundancies, while oversupply could depress prices further and lead to another surge in loan defaults. 

These concerns are more centred on Dubai, where the property crash has wiped 50 per cent off values since peak levels at the end of 2008.

For this reason, neighbouring Abu Dhabi’s retail banking market is expected to outpace that of Dubai’s in the next few years. Banks are increasingly voicing an interest in establishing or expanding operations there owing to its stronger economic fundamentals which should help attract a larger workforce and new potential customers.