UAE banking sector on path to recovery: S&P Global
Further deterioration of UAE banks' asset-quality indicators will remain contained as the economy improves and corporate activity recovers, said S&P Global Ratings in a new report.
“We expect part of the deterioration will come from deferred exposures once the central bank (CBUAE) lifts support measures and companies in still vulnerable sectors are reclassified,” added the UAE Banking Sector 2022 Outlook.
The UAE’s economic activity will accelerate in 2022 due to higher oil prices, supportive government policies, and normalizing non-oil activity.
Corporates are recovering gradually as economic activity normalizes and the oil price recovers, but sectors such as aviation and hospitality remain vulnerable. The rise in Dubai real estate prices may slow down because the structural oversupply of residential property could challenge the market over the long term, the report said.
The UAE banking sector should benefit from expected interest rate hikes, assuming banks adopt a pragmatic approach for borrowers by not reflecting the rate increase systematically if it could dip borrowers to default. – Stable and strong capital buffers, good funding profiles, and expected government support should continue to support banks’ creditworthiness in 2022.
“We expect the impact of the Russia-Ukraine conflict on the UAE banking system to be limited for now,” S&P Global Ratings said in the report.
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