S&P Global Ratings have recently released a new report on the UAE banking sector in 2021, discussing how profitability for banks in the United Arab Emirates will likely remain low in 2021 as the impact of the 2020 economic shock continues to reverberate.
The report, titled “ UAE Banking Sector 2021 Outlook: A Long Recovery Road Ahead” outlined how S&P Global Ratings expect GDP growth to recover in the United Arab Emirates this year from the sharp recession of 2020 triggered by the COVID-19 pandemic and low oil prices, however, they also predict that real GDP (in dollar terms) will only return to the 2019 level by 2023. Key sectors, particularly real estate, hospitality, and retail, will likely remain under pressure for the next 12 months.
The report further indicates that S&P expect banks’ asset quality to deteriorate and cost of risk to increase further as they start recognizing the impact of the 2020 shock and as the Central Bank of UAE (CBUAE) lifts its forbearance measures progressively in H2 2021. Given continued low-interest rates, banks’ profitability will, therefore, remain low in 2021 with a few banks potentially showing losses.
However, strong and stable capital buffers, good funding profiles and expected government support should continue to support banks creditworthiness in 2021. In addition to this, the country’s target to vaccinate 50% of the population by the end of Q1 2021 is also positive, as further virus waves and mutations pose significant risks.
To find out more or read the report in full, click here.