Gulf economies on the road to recovery ten years after Lehman Brothers’ collapse

Ten years after the 2008 collapse of Lehman Brothers and the global financial crisis, banks in the UAE have seen a period of stability and growth, with robust levels of Basel III-strengthened capital. Analysis published by global law firm Linklaters shows that credit extended by banks has gone up year by year, from 2008 to 2017, increasing by 120%.

  • Credit in the UAE up by 120% in last ten years
  • Number of foreign banks returned to pre-crisis high
  • Tier 1 capital ratio up

Analysis also shows that the number of foreign banks operating in the UAE has returned to levels seen in 2007. There was a drop to 22 banks in 2008, which remained until 2014 when foreign banks started to slowly return to the market. There are now 27 foreign banks listed with operations in the UAE.

Jonathan Fried, Capital Markets partner at Linklaters, says:

“The effects on the economy of the process of deleveraging which began around ten years ago, though mitigated somewhat by liquidity provided by regional banks, has been the story for much of the last decade. But there has been a positive evolution in the past few years, in terms of robust activity in the region’s public capital markets.”

He also points to the impact of the wave of regulation on the banking sector. In the aftermath of the global financial crisis, banks were expected to meet enhanced minimum qualitative and quantitative liquidity and capital requirement, in line with their international peers.

As an example, analysis from global law firm Linklaters shows that there have been slight ebbs and flows with the level of Tier 1 capital ratio held by banks in the UAE. At the height of the global financial crisis, in 2009 it was at 15.4% and increased to a high of 17.6% in 2012. Last year it stood at the 16.6% level.

Fried says: “Basel III capital requirements were a strong global response to the financial crisis. The rules were only fully implemented in the UAE this year, but many of the quantitative liquidity and capital requirements were already being imposed from some time ago. The overall effect on bank lending of the twin constraints of Basel III and, in this region, the recent fall in oil prices is an expanding debt capital market, with debut issuers coming to market and new products being structured. So the global regulatory response to the global financial crisis of ten years ago is being felt here, today.”