Dubai – Mubasher: Moody's Investors Service on Monday maintained its outlook on the UAE's banking system at stable, which reflects “economic resilience, strong capitalisation, stable funding and liquidity conditions’’.
"Faster economic growth in 2018 will support the banking system's credit growth,” said Mik Kabeya, analyst at Moody's.
“We forecast credit growth of around 5% in 2018, after a forecast lower growth of around 2% in 2017, from 5.8% in 2016 and 8.0% in 2015,” he added.
After the slow economic growth in 2017, loan performance will decline slightly, while problem loans will rise to between 5.5% and 6.0% of gross loans by 2018 compared to 5.3% in June 2017, according to Moody's.
Loan quality will witness downside risks due to “high concentrations of loans to government-related institutions and to a volatile real-estate sector,” Moody's stated.
The UAE's banks will see high capital levels during the next 12 to 18 months, while the tangible common equity (TCE) will be between 14% and 16% of risk-weighted assets, Moody's data showed.
“This resilience, which reflects banks' internal capital generation and lower growth in risk-weighted assets, provides a substantial cushion against softening loan performance,” the investor’s service company added.
"Stabilising oil prices and international bond issuances will continue to support funding and liquidity conditions in the country, following a tightening during 2016 amid oil price weakness," Kabeya noted.
The UAE’s banks will continue to rely on deposits for funding, while using more fluctuating market funding on a smaller scale, the credit rating agency explained.
Moody's expects high profitability with a net income ranges from 1.5% to 1.7% of tangible banking assets to continue over the next 12 to 18 months.
