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UAE banking: Can it ever rival European centers?

UAE banking: Can it ever rival European centers?

Private banking hubs are flourishing in the region, attracting money from all over the world. Is this a window of opportunity for the UAE to become a global banking center?

May 18, 2010 10:53 by

Regional financial analysts are keen on the vision of a UAE banking sector becoming the “Switzerland of the GCC.” Strong indicators of investor confidence are present and analysts are keen to point out the financial agility evidenced by the GCC economies during the height of the downturn. The GCC Investor Sentiment Index recorded its second biggest ever gain on record, Shuaa Capital reported last month. “The results of the Index were almost entirely driven by a dramatic, positive change in investor sentiment towards the UAE,” Shuaa said.

“Wealthy clients from both East and West are seeking new financial centers in which to place their money in an environment offering discretion, security and professionalism,” explains Gérard Al-Fil, a financial journalist with AME Info.

Historically, European banking centers like Zurich and Geneva attracted wealthy clients by offering strong confidentiality protections and steadfast political stability. However, fallout from the financial crisis has put some Swiss banking centers under pressure to place high net worth clients under more scrutiny.

Switzerland, with its well-developed privacy laws, has been the subject of increased scrutiny in the wake of the financial downturn. European countries keen on getting their fair share of taxes from wealthy residents are looking to explore hidden assets of some of their richer nationals, many of which reside in fat Swiss bank accounts.

“Cash-strapped European Union countries cannot directly access bank data on an estimated $600-700 billion of undeclared European assets hidden in Swiss accounts,” Reuters reports.

“Switzerland may have to consider full transparency to give a future to its $2-trillion offshore banking industry as concessions made so far have done nothing to stem relentless pressure from big European neighbors,” Reuters adds.

Protecting assets and ensuring a favorable political and business climate are two factors that have traditionally underpinned Swiss banking.

“Wealthy Arabs favor Geneva banks because they like the discretion and the political stability of the country”, explains Didier Duret, manager with ABN AMRO Private Banking in Geneva.

But in the last five years, private banking hubs have also flourished in the East, offering tax free and low tax options for affluent clients. The rising financial clout of the UAE, combined with strong business and banking incentives and the changing regulatory climate in European banking centers, has lead some analysts to suggest that this may be the window of opportunity for the emergence of new global banking centers.

Dubai and Singapore are perhaps leading the charge. In the last five years, scores of leading Swiss financial institutions including UBS, Credit Suisse, and Mirabaud, have established branches in the DIFC. Today, there are 243 authorized firms in the DIFC from all over the globe.

Optimistic financial analysts see a favorable climate for the fulfillment of the UAE’s banking potential, given the many western clients who reside in the UAE, favorable tax incentives, and the sheer number of high net worth individuals in the region. All of these look set to lure more money into Dubai and away from the traditional European banking centers.

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