The UAE’s banking sector continued to report strong growth in lending, profits, assets and asset quality in the second quarter of 2015, thanks to the resilience of the economy despite a sharp decline in oil prices over the past 14 months.
The loan growth figures and the overall net profit growth over the first six months of the year indicate banks have so far managed to withstand the economic challenges arising from oil price decline and a potential contraction in the economic growth,NewsNow reported.
According to projections by the International Monetary Fund, economic outlook is expected to moderate amid lower oil prices. Non-oil growth is projected to slow in 2015, before accelerating in the medium term. Export and revenue losses from lower oil prices will be the most significant transmission channel for the UAE economy.
UAE’s non-oil growth remained robust at 4.8% in 2014, but the economic outlook is expected to moderate amid lower oil prices and the non-oil growth is projected to slow to 3.4% in 2015, before increasing to 4.6% by 2020.
Loan Growth
Loan growth figures for the first two quarters show that the impact of the slowing economy is yet to show up in loan demand and bank lending. Growth rates diverged across the sector. While Emirates NBD reported a 4% loan growth during the period, National Bank of Abu Dhabi and Abu Dhabi Commercial Bank, reported 20% and 9% growth in net loans and advances during the period.
FGB maintained lending momentum with its loans and advances, expanding by 16%, as Union National Bank and Mashreq reported 9% and 4% loan growth during the period.
Despite the robust results in the first two quarters of the year, bank managements are cautious in their outlook for the second half of the year. Under the current economic and business environment, the UAE banking sector’s credit growth is expected to be flattish this year, said Abdul Aziz Al Ghurair, CEO of Mashreq.
Rating Agencies
Global rating agencies Standard & Poor’s and Moody’s expect moderation in loan growth and profitability of banks in their outlook for 2015 and 2016, but they agree that the UAE’s banks are in a much better position compared to 2009 when they were faced with significant jump in non-performing loans and huge pressure on assets and earnings growth.
If the oil price decline is to persist over a longer period, the rating agencies expect a much stronger impact on domestic credit growth via reduced government spending.
Last year was a good year for the UAE banks with average earnings growth of 22% on the back of 4.5% economic growth. A sharp decline in credit losses from 2012 and 2013 contributed strongly to earnings growth, with the banks continuing to realize large recoveries on their non-performing exposures.
