Resilient financial performance will enable rated UAE banks to maintain stable credit profiles in 2020, barring any unexpected increase in geopolitical risk or a major fall in oil prices, S&P Global Ratings said in a new report.
"Although in our base-case assumptions we exclude a fully-fledged direct military confrontation between Iran and the US, we do expect tensions to intensify and recede periodically,” said S&P Global Ratings credit analyst Puneet Tuli, commenting on the report "UAE Banking Sector2020 Outlook: Resilience In A Difficult Operating Environment" published on RatingsDirect.
“This will mainly affect the UAE through lower consumer sentiment and delays in leveraged finance investments, which are accentuating price declines in the already-depressed real estate sector.”
“In 2020, we expect the UAE economy will expand at a slightly higher pace compared with 2019, thanks to Abu Dhabi's $13.6 billion stimulus package and the Dubai government's planned investments for the 2020 World Expo (Expo 2020), which should prop-up investments in the non-oil economy and increase tourism-related activities,” Tuli added.
“We also expect mid-single-digit net lending expansion in 2020, supported by some of these projects. The stock of problematic assets (Stage 2 and 3) and loans should remain stable, but we foresee some migration between the two categories and a slightly higher cost of risk at about 120 basis points (bps) in 2020 (versus 110 bps in 2019).
"Against this backdrop, and continued pressure on net interest margins, we expect a slight deterioration in sector profitability," Tuli concluded. – TradeArabia News Service
UAE banks will remain resilient in 2020, says S&P
