Fitch gave UAE banks a stable outlook, in its new report, entitled: “Expectations of Middle East Banks 2024.” The agency expected that “favorable business and operating conditions for UAE banks will continue in 2024, as well as real GDP growth will accelerate moderately to 3.9% in 2024 (2023: 2.3%), but non-oil GDP is expected to slow to a percentage that remains… Reasonable at 2.7% in 2024 from 4%, supported by government and institutional spending, a strong real estate sector, and dynamic population growth. Banks will continue to benefit from high interest rates, favorable liquidity conditions and generally healthy operating conditions.”
- Reduced non-performing loans
Fitch expects UAE banks’ non-performing loan ratios and the cost of risk to decline moderately in 2024, supported by a favorable operating environment and loan growth.
It is also expected that most UAE banks will write off higher levels of old fully allocated loans, after recent changes in debt collection legislation that work to simplify debt collection procedures. However, the average NPL ratio in the sector will remain above 5% (end H1 2023: 5.7%).
- Continued strong profitability
According to Fitch, UAE banks’ profitability metrics have reached historically high levels in 2023, expecting that “the sector’s average operating profit to risk-weighted assets ratio will reach 3.4% for the full year, driven largely by the strong expansion in net interest margins (percentage margin ratio). interest rate by 50 basis points to 3.3% in the first half of 2023) and lower cost of risk.
According to Fitch, the basic forecast assumes that the net interest margin of UAE banks will remain above 3% in the medium term, as “we do not expect the Federal Reserve to begin reducing interest rates until mid-2024, and we expect this to be very gradual.”
- Capitalization is stable
The agency expects average adequate capital ratios for the sector to remain stable over the medium term, with the average common capital ratio remaining in the 13.5%-14% range, as the impact of large-scale lending growth will be offset by internal capital generation.
Fitch expected banks’ financing and liquidity to remain strong, reflecting moderate loan growth, rising oil prices, and continued growth in the expatriate population, accompanied by remittances to the UAE.
The agency also expected that the share of current and savings accounts will remain healthy at more than 50%, which supports the net interest margin of banks. High concentration of deposits remains a major risk. Liquidity will remain supported by large government deposits, driven by a strong sovereign net external asset position, still strong fiscal metrics, and recurring hydrocarbon revenues.
It expects the share of current and savings accounts to remain healthy at more than 50%, supporting banks’ net interest margin, and liquidity will remain supported by large government deposits, driven by a strong sovereign net external asset position, still strong financial metrics, and recurring hydrocarbon revenues.
2023-12-06 19:00:22
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