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UAE banks are expected to report slightly lower credit growth than the 7 per cent reported last year as new lending eased in the last quarter of 2023. Global ratings agency S&P said the trend is likely to continue in the first half of 2024.
Puneet Tuli, primary credit analyst, S&P Global, said high interest rates and reduced non-oil sector activity slowed credit growth in the last quarter of 2023. However, banks are reporting exceptional full-year profitability on the back of lower provisioning requirements and higher interest margins. Furthermore, liquidity was also improved as deposit growth outpaced new lending.
“We also note that the Dubai government has been deleveraging over the past few years, owing to higher revenue and lower financing needs. On the other hand, we expect retail borrowing to remain strong as banks continue expanding in this profitable segment,” he said.
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Nevertheless, with higher-for-longer rates, cash flow pressures could eventually weigh on corporate credit quality and further weaken demand for new credit.
In addition, the uncertain geopolitical situation could pose risks to the overall economic sentiment in the region.
S&P expects asset quality to remain broadly stable, with only a slight increase in nonperforming loans and credit losses.
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“We see potential pressure on asset quality from leveraged corporates and small- to mid-size enterprises, due to recent monetary policy tightening. However, we believe the solid performance of non-oil sectors and banks’ precautionary provisioning will help maintain the stability of Stage 3 loans and credit losses,” it said.
5.3% UAE growth in 2024
S&P analyst expects that increasing oil production, and supportive non-oil sectors, will fuel economic growth in the UAE in 2024.
“We expect oil prices to remain broadly stable in 2024. The non-oil sector GDP will likely continue expanding, albeit at a slower pace than in 2023, thanks to the hospitality, real estate, and financial services sectors. Overall, we expect real GDP to expand by 5.3 per cent in 2024, compared to the 3.4 per cent estimated for 2023,” said Tuli.
S&P forecast growth is based that the current round of Opec+ oil production cuts will expire at the end of March.
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