Moody's maintains stable outlook for UAE banking system on resilient credit profiles

The ratings agency expects economic growth to remain stable at subdued levels

United Arab Emirates Dirham.Image used for illustrative purpose.

United Arab Emirates Dirham.Image used for illustrative purpose.

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Moody’s Investors Service maintained a stable outlook for the UAE’s banking system, citing banks’ strong capital, stable funding and healthy liquidity that balance weakening asset quality and softening profitability.

The ratings agency said it expects the country’s economic growth to remain stable at subdued levels and forecasts overall real GDP growth at 1.7 percent in 2019 and 1.4 percent in 2020, compared with 1.7 percent in 2018.

It forecast credit growth in 2019 and 2020 at 4 percent compared to 4.3 percent in 2018.

Moody’s said it expects “solid profitability to support sector-wide tangible common equity (TCE) at 14%-16% of risk weighted assets over the next 12 to 18 months, from 14.4% at June 2019. Even under our low probability, high stress scenario, the sector-wide TCE ratio would remain adequate at 11.6%.”

The ratings agency noted that moderate oil prices will be sufficient to support the revenues of government-related entities and corporates, which will contribute to stable funding and liquidity conditions.

It said profitability is expected to decline modestly, while loan performance will weaken as subdued economic growth means corporates will face lower business volumes and margin compression, while personal borrowers see limited wage growth.

Moody’s also said that the UAE’s government’s willingness and capacity to support local banks if needed will remain high over the next 12 to 18 months.

(Reporting by Gerard Aoun, editing by Anoop Menon)


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