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UAE’s real GDP poised for 5.3% jump in 2024, says S&P Global
Lower provisioning requirements, higher interest margins, and improved liquidity contributed exceptional profits for UAE banks in 2023.
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Amidst global market shifts, the UAE economy stands tall, largely due to its banking sector. Fueled by growth, rising profitability, and financial strength, UAE banks are leading the nation’s economic resurgence.
The UAE economy is expected to experience an expansion of 5.3% in 2024, according to S&P Global Ratings. This outlook is driven by increased oil production and continued growth in non-oil sectors such as hospitality, real estate, and finance.
This positive economic climate has translated into good profits for UAE banks in 2023. Lower provisioning requirements, higher interest margins, and improved liquidity fueled by strong deposit growth all contributed to record profits for some institutions.
The report anticipates a 100 basis point cut in US interest rates by the Fed in the second half of 2024. As the UAE dirham is pegged to the dollar, the Central Bank will likely follow suit, impacting local interest rates.
Despite the anticipated interest rate cut, S&P Global believes banks will benefit from higher rates for extended periods, maintaining strong net interest margins.
Stable cost of risk and continued growth in retail lending are additional factors contributing to the predicted strong profitability of UAE banks.
The report emphasizes the robust liquidity position of UAE banks, with average cash and money market instruments exceeding 21% for the top 10 banks.
This, combined with strong core customer deposit growth and limited reliance on external funding, ensures stable funding structures for the sector.
S&P Global also highlights the positive trend in net foreign assets, which have grown significantly since 2021, further bolstering the financial strength of UAE banks.