The two factors that will continue to drive the profitability of UAE's banks
An improving economy and a robust property market will boost the profitability of UAE banks significantly during the current year and years ahead, according to S&P.
Bank lending to the private sector in the country will grow more than 300 per cent to 8.4 per cent in 2014 compared to 2.3 per cent in 2012, according to a latest report by the International Monetary Fund.
Moody’s, on the other hand, predicted higher credit growth for next year compared to the IMF’s estimates. “Economic growth, combined with increasing confidence and the ongoing real estate market recovery, will support credit growth of seven to 10 per cent in 2014,” the agency said.
The ratings firm also upgraded its outlook on the UAE’s banking system from negative to stable on Wednesday. Improving economy and property market looks likely to increase profitability and reduce the number of problem loans, it said in a report.
The outlook change reflects the continued improvements in the operating environment, as well as the ongoing recovery of the local real estate market, which Moody’s believes will lead to a decline in problem loan levels and an increase in profitability over the next 12 to 18 months. Banks will continue to maintain high liquidity and capital buffers that were built up since the onset of the global financial crisis, it added.
Bank lending is showing signs of improvement as the government forecasts economic expansion of 4.5 per cent in 2013, the most since 2006. Domestic production is also reviving after the effects of the 2009 credit crunch.
Moody’s predicts real GDP to grow by 3.6 per cent in 2013 and 3.7 per cent in 2014, supported by continued public sector spending and strong signs of recovery in Dubai’s more diversified private sector.
The agency expects that the increase in net income will provide UAE banks with the internal capital generation capacity necessary to support asset growth over the outlook period, whilst maintaining their strong Tier 1 capital levels, which stood at around 16 per cent as of June 2013.
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