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20 April 2024

UAE banks prospects good: S&P

By Staff

Banks in UAE have good prospects this year because of healthy economic growth and an upbeat corporate sector, Standard & Poor's Ratings Services said on Wednesday.

"Real estate prices have been inching upward since late 2012, particularly in Dubai, and banks' credit losses are gradually decreasing," said S&P’s credit analyst Engin Timucin.

"Over the past six months, we've also seen signs that credit growth is picking up. We expect these trends to provide banks with another year of strong financial performance, and they support our stable rating outlooks in the sector. We believe the key risk factor to watch over the next 24 months will be developments relating to certain large restructured transactions."

Engin said: "Potential nonpayment of these debts could increase some banks' provisioning requirements, thereby reducing their profitability."

The article also states that, while the supply of credit continues to increase, it remains to be seen whether banks will manage to avoid the pitfalls that led to the costly boom and bust cycle in 2002-2008. Still, Standard & Poor's thinks asset quality will continue to improve, although the cost of risk is unlikely to reduce further.

Banks’ robust funding levels and good-quality capital should help them withstand adverse market developments, such as tighter liquidity and higher funding costs.