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Moody's Investor Service has maintained a stable outlook for the UAE's banking system reflecting the view that operating conditions in the country will continue to recover from pandemic lows, buoyed by high oil prices.
The ratings agency has forecast the UAE's real GDP to jog along at 4% this year, following a 7.6% expansion in 2022. The country is OPEC's third-largest producer.
The higher oil price will boost private consumption and investment in the non-hydrocarbon sectors of the economy, where the banks do most of their business, including the real-estate sector, the report said.
Last week, the S&P Global UAE Purchasing Managers' Index (PMI) report noted that despite a slight softening, the UAE's non-oil private sector grew at a robust pace, posting 55.5 on the index, well in expansion territory.
Brent crude futures was trading slightly higher at $72.34 a barrel this morning, after falling around $3 on Monday, Eikon data showed.
According to Moody's, rising business confidence, particularly among large corporate players, will drive overall economic growth, supporting loan performance.
"Consequently, we expect problem loans to decline, although large loan restructurings will keep loan-loss provisioning charges broadly flat," said the lead analyst Azhar Bouzidi and others.
Strengthening loan portfolios, combined with growth in operating income, will deliver modest growth in profitability, likely restoring it to pre-pandemic levels.
The stable outlook also captures the UAE banks' strong capital buffers. Robust oil prices will boost domestic deposits and "we expect funding and liquidity conditions to remain strong".
The likelihood of government support for banks in financial difficulty is very high, the ratings agency noted.
(Writing by Brinda Darasha; editing by Seban Scaria)
