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Moody’s: UAE banking to see robust credit development

Moody’s: UAE banking to see robust credit development

The global rating agency keeps its outlook for the bank operating system at steady, underpinned by strong capitalization, steady funding and liquidity conditions

On the trunk of economic resilience, the UAE bank operating system will discover robust credit growth underpinned by strong capitalization, steady funding and liquidity conditions, Moody’s Investors Service

Maintaining its outlook intended for the bank operating system at the stable, the global rating agency said the economic growth of the UAE will rebound.

“We expect increasing non-oil economic activity to improve real GDP development to 3.2 % in 2018, carrying out a forecast slowdown to at least one 1.1 % in 2017 from 3 % in 2016,” stated Mik Kabeya, an analyst at Moody’s.

“Faster economic development in 2018 will support the banking system’s credit development, and we forecast credit development of around five % in 2018, after a forecast lower development of around two % in 2017, from 5.8 % in 2016 and 8.0 % in 2015” stated Kabeya in the report ‘Banking system outlook – UAE: Economic resilience and solid bank financial fundamentals travel our stable outlook’.

Loan performance can soften modestly following sluggish economic development this year. Problem loans shall advantage higher, reaching 5.5-6.0 % of gross loans by 2018, from 5.in June 2017 3 percent.

“Large concentrations of loans to government-related organizations also to a volatile real-estate sector pose downside dangers to mortgage quality,” Kabeya stated.

Banks’ capital amounts will stay strong over another 12 to 1. 5 years, with system-wide tangible common collateral at between 14 % and 16 % of the risk-weighted property.

“This resilience, which reflects banks’ internal capital era and lower development in risk-weighted assets, offers a considerable cushion against softening mortgage performance,” the rating company said.

“Stabilising oil prices and international relationship issuances will continue steadily to support financing and liquidity circumstances in the country, carrying out a tightening during 2016 amid oil cost weakness” stated Kabeya. UAE banking institutions will stay primarily deposit-funded, with a good recourse to even more volatile market financing.

Based on the UAE Central Bank’s Credit Sentiment Study, corporates and smaller businesses are anticipated to be the principal driver of credit demand more than the next 12 weeks, continuing a trend observed in the prior quarter when business financing outpaced lending to people.

Abdul Aziz Al Ghurair, chairman of UAE Banks Federation, has said UAE banking institutions would post profit growth of around five % in the next half of 2017, like the first half a year as poor loans ease and lenders climate the Qatar crisis.

“The entire economy, the federal government, and the banking industry offer accepted the oil cost will be around $50, so they need to live with that and is a component of their planning procedure,” Al Ghurair was quoted as saying in an interview.

Moody’s expects profitability to stay solid, with a net gain measuring around 1.5 -1.7 % of tangible banking property over another 12 to 1.5 years.

Badis Shubailat, an associate analyst at Moody’s, said the recovery would reflect authorities spending in Dubai and increasing activity in trade and financial solutions.

“Non-oil activity, including federal government spending in Dubai and robust financial activity in trade and monetary providers, will support development of the UAE economy. The building of main infrastructure tasks in Dubai in planning for the 2020 World Expo may also contribute to development,” said Shubailat.

Non-oil GDP cooled during 2016, mainly reflecting constrained public-sector spending. Authorities spending accounted for 30 % of GDP in 2016, and solutions accounted for 78 % of nominal GDP, Moody’s noted

 

Source: Khaleej Times

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