(MENAFN- Khaleej Times) Banks in the UAE will continue to achieve strong results during this year, supported by prevailing high interest rates despite an expected trend of reduction, rating agencies said.
Dr. Mohamed Damak, a financial institution ratings analyst at S&P Global Ratings, said he expects three interest rate cuts this year, totalling 75 basis points in the second half of the year, followed by further cuts of 125 basis points in 2025.
"When discussing asset quality, the picture remains strong, with a low level of non-performing loans and a coverage ratio of 100 per cent, which is more than adequate," said Damak.
In the first quarter of 2024, all banks in the country reported remarkable profit growth. Rating agencies are upbeat on the banking sector performance and expect banks to maintain their solid performance in 2024 and take the lead in regional growth after a strong first quarter despite a slight moderation expected in the second half with the US Federal Reserve likely to start cutting rates in mid-2024, rating agencies predicted.
Analysts at Fitch Ratings said the UAE banking sector growth will be driven by robust credit demand stemming from dynamic non-oil sectors and comprehensive economic diversification programs in both countries.
Banking experts at S&P Global anticipate overall stability in key metrics for GCC banks in 2024. Credit growth and profitability are expected to remain robust, with the UAE and Saudi banking systems leading the region. However, potential risk, they wrote.
Moody's Investors Service revised the outlook for UAE banks to positive from stable amid strong economic growth on the back of diversification efforts.
The UAE's real gross domestic product is expected to expand by 4.6 per cent in 2024, from 3.1 per cent in 2023, and the non-oil economy will grow by an estimated 4.5 per cent this year, supporting banks' performance, the rating agency has said.
“Continued economic growth will support borrowers' repayment capacity ... banks' strong capital buffers will inch higher on the back of bottom-line profitability that will remain broadly stable,” Moody's said.
Analysts said the banking sector continued its growth momentum last year and is poised for further growth and recovery in 2024 based on the apex bank's strategies and policies in setting the necessary frameworks and regulations to deliver sustainable growth.
Bank investments in the UAE surged to Dh640.1 billion by the end of January, the highest level in the country's history, according to a report by the Central Bank of the UAE.
The investments registered a remarkable 19.4 per cent increase compared to January 2023, underscoring the confidence of banks in deploying capital towards diverse investment opportunities.
The CBUAE has succeeded in maintaining a stable and efficient banking and financial system by providing efficient and effective central banking services. It also made record levels of growth in assets, credit, deposits, and investments, and maintained strong levels of capital efficiency, provisions and reserves, to ensure compliance with the highest standard of governance, transparency and risk management.
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