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UAE banks set for strong asset and profitability growth in 2014

January 22, 2014

Babu Das Augustine Deputy Business Editor

Dubai : The UAE's banking sector is set to witness strong loan growth and profitability gains in 2014 backed by healthy economic growth and an upbeat corporate sector according to Standard & Poor's Ratings Services . After going through a long period of balance sheet repair and deleveraging, the banks have resumed lending activity while their overall provisions are on decline. "Over the past four years, UAE banks have reined in their lending activity as they focused on cleaning up their balance sheets, restructuring large exposures, and improving their funding and liquidity profiles. We now see clear indications that credit growth is increasing, particularly in Dubai , a trend that we expect will gradually accelerate in 2014," said Timucin Engin , Associate Director, Financial Services Ratings, Standard & Poor's Ratings Services . The overall economic revival, improved employment levels and a strong recovery in asset prices led by the real estate sector has strengthened the bank balance sheets while brightening the prospects of asset growth. "Real estate prices have been inching upward since late 2012, particularly in Dubai , and banks' credit losses are gradually decreasing," said Engin. Standard & Poor's expect GDP growth in the UAE to average about 3.7 per cent annually over 2014 supported the non-oil sectors and expectation that oil prices will remain at about $100 (Dh367) per barrel. Key sectors, such as tourism and corporate services, are performing strongly, particularly in Dubai , and a strong rebound in real estate prices over the past 18 months has improved the loan demand. Balance sheets Banks in the UAE had stopped lending almost completely in 2008-2012 as they shifted their focus to cleaning up their balance sheets and improving their funding profiles. During this period compound average growth in credit to residents was a meagre 2.3 per cent annually, well below the 13.2 per cent average nominal yearly GDP growth rate during that period. Last year, there were visible signs of a revival in UAE banks' loan portfolios. According to central bank data, in the first nine months of 2013, gross system loans increased by 7.5 per cent and the amount of personal loans had risen by 9.3 per cent. We expect the nominal growth of credit to remain at about 10 to 12 per cent in 2014 and 2015. The positive overall trend in employment and the retail sectors should continue to foster banks' retail loan books. We also expect vigorous demand for corporate credit in view of potential new projects in Dubai ahead of its hosting of the World Expo trade convention in 2020," said Engin.

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Source: Gulf News (United Arab Emirates)

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