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Moody’s has revised its outlook for UAE banks from stable to positive, even as the sector continues to face low profitability and persistent geopolitical headwinds. The upgrade reflects the UAE’s ongoing economic diversification efforts and structural reforms within the banking system.
“We see operating conditions quite robust in the UAE, which will continue to create strong growth opportunities that banks will be able to respond to effectively, thanks to ample liquidity resources,” said Francesca Paolino, AVP, Analyst, Moody’s Ratings.
According to the ratings agency, UAE banks will maintain robust liquidity, benefiting from economic buoyancy, structural reforms and a steady growth in the resident population that will drive deposit inflows.
Paolino also highlighted improving asset quality with UAE banks, despite “some pocket of resilience on the real estate front, notwithstanding the anticipated price softening,” she added.
Moody’s reports that an easing in monetary policy will likely see UAE banks face net interest margin compression that will see profitability “to marginally soften but remain solid.”
Outlook for GCC banks
Moody’s retains its stable outlook for most GCC banks, despite low oil prices.
“The current levels remain very much supportive of business confidence, which is very important for bank activities across the region. Inflation readings have been and will remain moderate, very much aided by government subsidies and robust fiscal firepower,” said Badis Shubailat, VP-Senior Analyst, Moody’s Ratings.
“As governments across the region continue to advance vast hydrocarbon diversification agendas, structural reforms will continue to sustain growth in the non-oil economic space,” he said.
From the remaining GCC nations, Oman is the only country to see its rating shift from ‘positive’ to ‘stable’, with Moody’s attributing the change to “solid operating conditions” that underpin “improving asset quality.”
(Writing by Bindu Rai, editing by Seban Scaria)
