Journal of Applied Finance & Banking

Corporate Governance of UAE Financial Institutions: A Comparative Study between Conventional and Islamic Banks

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• Abstract

  This study is targeted to enhance understanding of corporate governance (CG) in the banking sector and to examine the existence and practice of CG mechanisms in United Arab Emirates (UAE) Conventional Banks (CBs) and Islamic Banks (IBs). More specifically, the paper aims to explore to what degree corporate governance structures and practices used by CBs and IBs are different, including CG mechanisms forced by the law (Board of Directors, Auditors, Audit Committee and Credit Committee) and other CG modes adopted voluntarily by these banks. This exploratory study conducted on all UAE conventional and Islamic banks over the year 2014/15, indicates that both CBs and IBs have similar corporate governance structures, particularly those forced by the law, where all banks have a board of directors, an auditor and an audit committee. The sole difference between CBs and IBs with regards to CG structures is driven from the existence of Sharia 'a Supervisory Board (SSB), which is exclusive to IBs. Most of these banks have other committees voluntarily created to enhance corporate governance, such as nomination, numeration committees. The domination of Non-Executive Directors (NEDs) on the board and the lack of board duality show that both CBs and IBs are increasingly adopting a more independent board of directors. The study indicates the importance of internal mechanisms vis-à-vis external norms. The paper provides a comprehensive picture to help understand key CG mechanisms, particular used by UAE banks. Therefore, it helps policy makers, shareholders and other stakeholders to maintain effective corporate governance systems to enhance the effectiveness of financial institutions.