Fitch and S&P Credit Ratings confirmed that UAE banks will maintain strong profitability in 2024.
Fitch said: It is believed that the average net interest margin in UAE banks has reached its peak, and will be broadly stable in 2024.
Fitch Credit Rating Agency confirmed that UAE banks maintained their strong performance during the current year, after a strong performance in the period from January to September 2023.
The agency indicated in its latest reports that the net profits announced by UAE banks rated by Fitch amounted to about 57 billion dirhams during the period from January to September 2023, which is reflected in good annual returns on shareholders’ equity at 20% compared to 14.5% in 2022. .
The agency explained that the performance of UAE banks was supported by the rise in interest rates, which is evident from the improvement in the average net interest margin for the banking sector to 3.3% in the same period.
The agency added in its report: “The liquidity of the UAE banking sector supports deposit growth that exceeds lending growth in the period from 2022 to 9 months of 2023, which led to a decrease in the average ratio of loans to deposits in the sector to 79% at the end of the third quarter of 2023 from 89%.” At the end of 2021.”
The agency stressed that the average net interest margin of UAE banks has reached its peak, and will be broadly stable in 2024, assuming that interest rates remain stable in the first half of 2024, with the first cuts in interest rates occurring only in the second half of 2024.
According to its analysis, the agency assumed that the sector’s average operating profit/risk-weighted asset ratio in 2024 will remain in the range of 3-3.5%.
The performance metrics of UAE banks support the rise in interest rates, as evidenced by the improvement of the average net interest margin for the sector to 3.3% in the first nine months of 2023, from 2.8% in 2022, and its stability in the third quarter of 2023 on a quarterly basis.
S&P
For its part, Standard & Poor’s (S&P) said in a recent report that it expects broad stability in key metrics in GCC banks in 2024, and that credit growth and profitability will remain strong. In general, the region’s banks will continue to excel because they are capitalized, profitable, and have good provisions, most of which are liquid.
The UAE and Saudi Arabia have the strongest return on assets outlook, while GCC banks are well protected from outflows.
She added that the banks of the UAE and Saudi Arabia are preparing this year to continue their growth, at higher rates compared to the rest of the countries of the region, in light of the strong credit demand led by the dynamic non-oil sector and economic diversification programmes. It also expected credit in the Sultanate of Oman to remain strong.
GDP growth is expected to accelerate across all GCC countries in 2024, and non-oil growth should remain particularly dynamic in the UAE and Saudi Arabia.
Interest rates are expected to remain high but may fall by one percent by the end of the year, in line with the US Federal Reserve, and inflation will remain close to target and contained through price management measures.
The agency expected that GCC banks would continue to benefit from large non-interest bearing deposits, despite the shift to term deposits, with margins continuing to be strong during 2023.
The UAE and Kuwait enjoy excess liquidity from oil deposits in the public sector, and the UAE also has strong commercial performance and a growing population. Liquidity may be concentrated in some banks.
Liquid assets in some Saudi banks have decreased as a percentage of total assets over the past few years, and we expect this to continue as rapid growth continues. However, we expect monetary authorities to provide liquidity during periods of tightening, especially when banks finance strategic projects, including projects aimed at economic diversification or sustainability-related schemes.
2024-02-01 22:01:27
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