Mubasher: Moody's Investors Service maintained its “stable” outlook for the UAE banking system, according to a recent report.
The outlook reflects the rating agency's view that resilient capital and liquidity buffers will help to protect banks' credit profiles despite the continued economic slowdown.
Moody's expected bank creditworthiness to evolve in the UAE over the next 12-18 months, the report highlighted.
"The solid profitability and capital of the UAE banks will provide protection against rising problem loans," according to Nitish Bhojnagarwala, Assistant Vice President -- Analyst at Moody's.
Sufficient liquidity will cushion against a decline in flows of government deposits as lower oil prices impact government revenues, Bhojnagarwala noted.
Moody's expects real GDP growth of around 2.5% and 1.9% for 2016 and 2017 respectively, a decline from 3.2% in 2015. Such economic slowdown will result in modest rise in problem loan formation, particularly in the overleveraged small and mid-sized company (SME) and retail (loans to individuals) segments.
"We expect problem loans to increase modestly to around 5.5% of total loans by mid-2017 following a period of strong recovery, which drove delinquencies down from the 2011 peak of 10.6% to around 5% currently," Bhojnagarwala said.
"The reliance on market funding for UAE banks' is expected to increase as deposit growth continues to decelerate" Bhojnagarwala added.
Government support for UAE banks will likely remain high, according to Moody's
