UAE banking outlook remains stable: Moody’s

Dubai, UAE – The outlook for the UAE’s banking system remains stable as banks’ credit profiles are resilient in a stable but subdued economy, Moody’s Investors Service said in a report published on Wednesday.

“Banks’ strong capital, stable funding and healthy liquidity balance weakening asset quality and softening profitability amid steady but subdued economic growth,” Mik Kabeya, AVP-Analyst at Moody’s said in a press release.

OPEC production cuts will constrain hydrocarbon economic growth, while slowing global trade, moderate oil prices, a strong currency (given the peg between the local currency and the US dollar), and geopolitical tensions will weigh on the nonhydrocarbon economy.

Problem loans formation will increase as subdued economic growth means corporates will face lower business volumes and margin compression, while personal borrowers see limited wage growth. Ongoing renegotiation and restructuring of large corporate debt will limit reported problem loans formation, but increase the potential for future formation. Strong capital gives banks the potential to absorb sizeable losses, and moderate oil prices will contribute to stable funding and liquidity conditions. UAE banks will remain primarily deposit-funded, with moderate recourse to confidence-sensitive capital markets.

Moody’s forecasts overall real GDP growth to remain stable at 1.7 per cent in 2019 and 1.4 per cent in 2020, compared with 1.7 per cent in 2018, thereby stabilising below the 4.8 per cent annual average of 20112016. Moody’s expects credit growth of 4 per cent in 2019 and 2020.