The UAE’s economy and the banking system are well positioned to withstand any global economic downturn resulting from Europe’s debt crisis, said Jonathan Morris, chief executive officer of Standard Chartered Bank in the UAE. “We expect the economy to grow at a slower rate in 2012 compared to the 3.8 percent growth projected for 2011. But the country’s strong fiscal position gives it enough room to spend its way out of a potential slowdown. This is true about most Gulf economies,” said Morris.
While the Arab Spring had minimal negative impact on economic activity in the UAE, he said, the relative strength of the economy and the safe haven appeal attracted fund flows into the country. “There has been significant improvement in the liquidity situation in the banking system this year. Increased external deposits were one of the factors that contributed to better liquidity in the system,” he said.
In October and November, the UAE banking sector experienced a decline in liquidity which Morris attributed to the fall in the value of the Indian rupee. “The decline in the rupee triggered a big surge in remittances, which resulted in the withdrawal of some deposits. But with the rupee on the recovery path we expect the outflows to stop,” Morris said.
The UAE is the fifth largest market for Standard Chartered globally and accounts for 60 percent of the bank’s Middle East profits. In the Middle East, he said, Standard Chartered will continue to expand in all the markets it is currently present in. In the UAE, the bank has invested $140 million (Dh514.2 million) in a new regional headquarters in Dubai. In Saudi Arabia it has a licence from the Capital Markets Authority (CMA) and has plans to apply for a commercial banking licence. Despite the recent political turmoil in Bahrain, Morris said the bank is committed to the country and has no plans to scale down its operations.
“Bahrain accounts for only about one percent of group profits. But we have a long-term commitment there. We have no plans to scale down our operations there. On the contrary, as stability returns we will expand our operations,” he said.
In the UAE, Morris expects the banking sector’s profitability to improve next year after non-performing loans (NPLs) declined significantly over the last year. While retail banking NPLs have declined as the UAE job market stabilised over the last two years, Morris said banks could still face a few more corporate debt restructurings.
We expect the economy to grow at a slower rate in 2012 compared to 2011. But the country’s strong fiscal position gives it enough room to spend its way out of a potential slowdown.”
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