Date of Award


Degree Type


Degree Name

Master of Business


Faculty of Business and Law

First Advisor

Associate Professor Atique Islam


All UAE banks perform the dual role of intermediaries 'for both the money and capital markets. They are entering a crucial stage of banking" development towards global competition with new banking laws imminent and the Basel II Capital acc6'rd being , , effective by December 2006. Within a challenging climate of financial transparency and limited data availability, .this research provides a benchmark and a unique league table of efficiency performances between 1998 and 2003 for comparative analysis between local banks in the UAE for present and future operational policymakers and researchers. This study offers an analysis and insight into UAE local banks, in one of the worlds fastest growing financial sectors. The study sets out to answer several important questions. First, are the record profits, enjoyed by local banks, consistent with best- practice or do they conceal inefficiencies? Second, has productivity improved during the period of rapid assets growth and profitability? Finally, does size matter, that . is, are bigger banks more efficient? The relative efficiency of UAE banks is measured through a construction of a series of productivity and efficiency measures. Consequently important insights and a richer understanding of the sources of improvements in bank performance are gained. This research reveals whether these efficiency performance measures are explained by structural factors such as the size of the banks (total assets), profitability, 'earnings per share (BPS); market power, risk, or capitalisation (total equity). Despite the vast amount of research in the areas of efficiency measures of industrialised countries' banking sectors, the Middle East, and in particular the UAE, remain relatively under researched in comparison. This research empirically investigates annual reports of the UAE local banks since 1998, thereby identifying and emphasizing the 'best practices' associated with high efficiency measures. Despite overall growing profits in the banking sector, results reveal evidence of overbanking and cost inefficiency by the sector as a whole and several banks in particular. The results suggest that some regulatory and not managerial policies may be responsible for poor cost efficiency results. The research reveals wide efficiency disparities amongst the UAE local banks, showing distinct economies of scale advantages for the five largest banks over the remaining local banks. Profits are high. but their efficiency levels are not always high. Use of the Tobit Regression Model identifies market concentration and over~banking as two of the contributory factors towards poor efficiency results of some banks. The results of this research raise the important policy question, what do less efficient banks need to do to enhance their prospects for sustainability post December 2006?

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